(a) Definitions. The following words and terms, when used in this section, shall have the following meanings, unless the context clearly indicates otherwise.
  (1) Commission--The Railroad Commission of Texas.
  (2) Hydrocarbons--Any oil, gas, condensate, and other liquid hydrocarbons produced from a well.
  (3) License holder--A person licensed by the commission to use a TERRA wellbore.
  (4) Operator--The person responsible under law or commission rules for the physical operation of a wellbore or lease.
  (5) TERRA--The Texas Experimental Research and Recovery Activity.
  (6) Wellbore--A hole in the ground drilled in connection with the exploration, development, or production of oil, gas, or geothermal resources and includes any tubular goods cemented in the wellbore.
(b) For each well qualifying under this section, the commission will furnish to the comptroller a copy of a certificate of exemption identifying the well, and the operator of the well and stating the date on which the tax exemption takes effect, subject to the comptroller's approval of the exemption.
(c) If the commission revokes a certificate for a tax exemption or a license issued under Natural Resources Code, Chapter 93, a tax exemption granted under this section is automatically revoked on the date the certificate or license is revoked, and hydrocarbons produced from the well after the date of revocation are subject to the natural gas production tax.
(d) The person responsible for paying the tax must apply to the comptroller for the exemption and include with the application the certificate issued by the commission. A license holder or operator of a TERRA well must report to the comptroller the volume of any hydrocarbons produced from a TERRA well. If the hydrocarbons are sold, the value of the hydrocarbons and the name and taxpayer identification number of the purchaser must be included.
(e) The following hydrocarbons are exempt from the taxes imposed by Tax Code, Chapter 201.
  (1) Hydrocarbons produced from a well subject to an agreement under Natural Resources Code, Chapter 93, and under a license issued under that chapter.
  (2) Hydrocarbons produced from a well formerly subject to an agreement under Natural Resources Code, Chapter 93, and a license issued under that chapter resuming production after participating in TERRA for two years.
(f) If the tax is paid at the full rate provided by Tax Code, Chapter 201, on hydrocarbons produced on or after the effective date of the tax exemption but before the date the comptroller approves an application for the tax exemption, the operator is entitled to a credit on taxes due under Tax Code, Chapter 201, in an amount equal to the tax paid during that period. To receive a credit, the operator or the party remitting the tax must apply to the comptroller by filing amended reports not later than one year after the date the commission certifies the well for a tax exemption. If a party other than the operator has remitted the tax due under Tax Code, Chapter 201, the party remitting the tax must apply to the comptroller for the credit by filing amended reports. If a party other than the operator has remitted the tax, the operator must provide the party remitting the tax a copy of the commission's certification that the well qualifies for the tax exemption.

Source Note: The provisions of this §3.22 adopted to be effective February 29, 1996, 21 TexReg 1430.