American Oil and Gas Reporter - May 2015 - 30

State Legislative Reports

Arkansas Lawmakers Clarify Tax Law
LITTLE ROCK, AR.-The waning days
of the 2015 Arkansas Legislature saw
lawmakers approve a couple bills that ensured certain transactions associated with
oil and gas activity were exempt from sales
taxes, reports the Arkansas Independent
Producers & Royalty Owners Association.
Especially considering that voters sent
a large proportion of new legislators into
office while they also approved a ballot
measure that redrew the boundaries for
how lobbyists could operate, the session
was a success for the state's oil and gas industry, says AIPRO Executive Vice President J. Kelly Robbins.
The same election that decided the new
governor and added 41 freshmen to the
state's House of Representatives also
saw the triumph of a fairly substantial
ethics reform measure that changed the
way AIPRO and other advocacy groups
could interact with elected officials. After it suddenly became illegal to buy a lawmaker dinner, Robbins says, AIPRO embraced other ways to interact with and educate policymakers.
"We had to get acquainted with all
those new House members under the
new rules," he recounts. "We held some
events, including a legislative reception
early in the session in conjunction with
America's Natural Gas Alliance, Arkansas
Petroleum Council, and Paschall Strategic
Communications. It creates an opportunity to inform recently elected members
about who we are, what we do, and why
our industry is important."
Sales Tax Exemptions
According to Robbins, both sales tax
bills, SB 801 and SB 802, passed late in
the session with overwhelming support and
arose from disagreements about Arkansas'
tax exemptions. SB 801 clarifies that
proppants qualify for the state's sales tax
exemption for manufacturing equipment.
SB 802 states that water hauling for disposal purposes is exempt from the state
sales tax as well.
The impetus behind SB 801 arose
from the Arkansas Department of Finance & Administration's determination
that fracturing sand did not qualify for the
manufacturing exemption, Robbins observes. A trial court has differed with the
state's position in a case brought by a service company, he adds, and although the
state has appealed that decision, SB 801
makes the law clear going forward.
Current activity places the legislation's fiscal note at only $390,000 a year,

30 THE AMERICAN OIL & GAS REPORTER

Robbins indicates, but AIPRO wants to ensure that oil and gas companies are treated fairly. Similar principles apply for its
support of SB 802, he continues. The need
for that bill originated in another DFA interpretation that deemed oil and gas
wastewater to be solid waste, which typically is subject to the state sales tax.
"The definition was farcical," Robbins
characterizes. "Some mom-and-pop operators that had been providing a service
without collecting the sales tax were audited and hit with tax bills for $1 million
and more. Our industry needs wastewater disposal infrastructure, but these
huge tax bills have some of those companies about to go bust."
SB 802 makes it abundantly clear and
specific that the service is not subject to the
state sales and use tax, he relates. "AIPRO
was very supportive of both SB 801 and
SB 802, so we worked with our members
and those directly impacted," Robbins
says. "Both bills moved very quickly."

Other Legislation
Robbins points to some more bills that
passed with AIPRO's backing, including
HB 1308, which clarifies that personal property taxes do not become delinquent-and
subject to interest or penalty-until 30 days
after a tax appeal's final disposition. Under the legislation, the property owner must
pay the county the undisputed portion, while
the disputed amount is placed in a court-established escrow account.
Setting aside the disputed money in
such an account, he notes, helps save
Arkansas counties the obligation of refunding tax dollars they already have allocated.
AIPRO also is pleased with the passage
of HB 1782, Robbins says, which changes
the state's processing and disposition of
various unclaimed properties, including
abandoned and unclaimed minerals. He
says AIPRO collaborated on the bill with
the Arkansas Oil & Gas Commission, the
state auditor, Association of Arkansas
Counties and the Arkansas County Tax
Collectors Association. The legislation includes provisions that address the escheatment of unclaimed mineral royalty
payments held in escrow while trimming
producers' reporting requirements.
"Before, producers had to hold that
money for five years and make annual reports to the AOGC," Robbins reports.
"That changes to three years and no annual reports. Producers simply must turn it
over to the state with certain prescribed in-

formation about those minerals' physical
location."
Another bill that saw AIPRO work with
AOGC was SB 554, which deals with the
natural gas conservation assessment fund.
The state raided those funds this session,
he notes, and sought to stake a claim to 4.5
mills of each 9.0 mills collected per Mcf
of gas produced going forward. "We did
not want to rock the boat too much, but we
also did not want (sweeping the fund) to
go on into perpetuity," Robbins says.
"So, we are pleased SB 554 includes a sunset to end that after this biennium."
He reports that another AOGC bill, SB
778, conforms integration hearings to the
standards required by the Arkansas Administrative Procedures Act, guaranteeing-but
not requiring-a hearing if there are no objections. "The AOGC is going to have to
create and get legislative approval for rules
to implement the statute," Robbins details.
"If a mineral owner holds an acre or less
and does not exercise the opportunity for
a hearing, the process of issuing a permit
and allowing production to begin does not
stop because a small mineral owner failed
to respond. Those mineral owners still will
get paid, but their lack of responsiveness
does not halt all activity."
Finally, Robbins mentions, AIPRO
was pleased that lawmakers approved
SR 23, a resolution expressing support for
expanding liquefied natural gas exports.
Eminent Domain
AIPRO also was largely successful
with regard to stymieing measures that
could harm the industry, Robbins continues. A few lawmakers' concerns about
some wind power generation and transmission projects raised a number of questions
about eminent domain requirements that
not only affected power lines, but also oil
and gas gathering and transmission
pipelines.
"We saw at least nine eminent domain
and/or private property rights-related
pieces of legislation," he says. "Three bills
actually passed, and although pipelines are
not the target, one of those bills will impact them."
According to Robbins, HB 1908 alters
the eminent domain process by requiring
"just compensation" and entitling
landowners to various fees and expenses
if the final adjudicated value is 20 percent
greater than that offered by the entity using eminent domain. He cites the fact that
Arkansas' largest natural gas producer never has used eminent domain as evidence

American Oil and Gas Reporter - May 2015

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