For the purpose of this article, the following terms shall have the respective meanings ascribed by this section:

(1) DEPARTMENT. The state Department of Revenue.

(2) ANNUAL. The calendar year or the taxpayer's fiscal year, when permission is obtained from the department to use a fiscal year as a tax period in lieu of a calendar year.

(3) VALUE. The sale price or market value at the mouth of the well. If the oil or gas is exchanged for something other than cash, if there is no sale at the time of severance or if the relation between the buyer and the seller is such that the consideration paid, if any, is not indicative of the true value or market price, then the department shall determine the value of the oil or gas subject to the tax hereinafter provided for, considering the sale price for cash of oil or gas of like quality.

(4) OIL. Crude petroleum oil and other hydrocarbons regardless of gravity which are produced at the well in liquid form by ordinary production methods and which are not the result of condensation of gas after it leaves the well.

(5) GAS. All natural gas, including casinghead gas, and all other hydrocarbons not defined as oil in subdivision (4) above.

(6) SEVERED. The extraction or withdrawing from the soil or water or from below the surface of the soil or water of any oil or gas, whether such extraction or withdrawal shall be by natural flow, mechanically enforced flow, pumping, or any other means employed to get the oil or gas from the soil or water or from below the surface of the soil or water.

(7) PERSON. Any natural person, firm, copartnership, joint venture, association, corporation, estate, trust, and any other group or combination acting as a unit, and the plural as well as the singular number.

(8) PRODUCER. Any person engaging or continuing in the business of oil or gas production, which, for the purpose of this article, includes the owning, controlling, managing, or leasing of any oil or gas property or oil or gas well, and producing in any manner any oil or gas by taking it from the soil or waters, or from beneath the soil or waters, of the State of Alabama, and further includes receiving money or other valuable consideration as royalty or rental for oil or gas produced or because of oil or gas produced, whether produced by him or by some other person on his behalf, either by lease, contract or otherwise, and whether the royalty consists of a portion of the oil or gas produced being run to his account or a payment in money or other valuable consideration.

(9) SUBMERGED LANDS. All lands within the territorial jurisdiction of the State of Alabama that are continuously or intermittently covered by marine or marine influenced waters and are below the mean high tide mark on all islands and land adjacent to the Mississippi Sound, Mobile Bay, Bon Secour Bay, Wolf Bay, Arnica Bay, Bay La Launch, and Perdido Bay; and excludes all areas upstream of the confluence of the Mississippi Sound, Mobile Bay, Wolf Bay and Perdido Bay with their natural tributaries.

(10) OFFSHORE DRILLING OR PRODUCTION FACILITIES. Barges, platforms or other drilling or production facilities located on submerged lands to drill or to produce oil or gas.

(11) OFFSHORE PRODUCTION. Gas or oil produced from offshore drilling or production facilities from wells located on submerged lands within the territorial jurisdiction of the State of Alabama.

(12) DISCOVERY WELL. Any well capable of producing oil and/or gas from a single pool in which a well has not been previously completed as a well capable of producing.

(13) DEVELOPMENT WELLS. All oil and/or gas producing wells other than discovery wells and replacement wells.

(14) ONSHORE WELL. Any oil or gas well that is drilled in an area other than submerged lands as defined herein.

(15) REPLACEMENT WELLS. A well drilled on a drilling and/or production unit to replace another well which is drilled in the same unit and completed in the same pool.

(16) COMMENCED. A well shall be deemed to have commenced when the well is spudded.

(17) COMPLETION. A well shall be deemed to be completed for purposes of this article when drilling and logging operations have ceased.

(18) POOL. As used herein, pool shall mean a single underground reservoir containing a common accumulation of oil or gas or both. Each zone of a general structure which is completely separated from any other zone in the structure is a single pool as that term is used herein.

(19) ENHANCED RECOVERY PROJECT. An oil or gas recovery project which is approved by the State Oil and Gas Board of Alabama employing one or more of the following methods:

a. Recycling, injecting or flooding a pool, or pools, or portion thereof, with air, gas, water, hydrocarbons, carbon dioxide (CO2), or any other substance, or any combination or combinations thereof; or

b. The use of polymers, steam flooding or fire flooding.

(20) SUPPLEMENTAL ENHANCED RECOVERY PROJECT. An enhanced recovery project in which injection of substances into a unitized area was initiated prior to January 1, 1985, and thereafter is improved by expanding or otherwise changing the unit operations associated with the project as approved by the State Oil and Gas Board of Alabama for the purpose of increasing the ultimate recovery of hydrocarbons.

(21) INCREMENTAL OIL OR GAS PRODUCTION. The amount of oil or gas which will be produced as a result of a qualified enhanced recovery project and which is in excess of the amount of oil or gas which could have been produced economically and efficiently from a pool or pools or portion thereof by production methods being utilized prior to said qualified enhanced recovery project being approved by the State Oil and Gas Board of Alabama.

(22) QUALIFIED ENHANCED RECOVERY PROJECT. A qualified enhanced recovery project shall mean an enhanced recovery project or supplemental enhanced recovery project that meets all of the following criteria:

a. That the area where the enhanced recovery project or supplemental enhanced recovery project is employed has been unitized in accordance with the provisions of Article 3, Chapter 17 of Title 9, as amended.

b. That injection of substances associated with the enhanced recovery project or supplemental enhanced recovery project has been or will be implemented as an integral part of the operations of the unitized area.

c. That the enhanced recovery project or supplemental enhanced recovery project be certified by the State Oil and Gas Board of Alabama as capable of incremental oil or gas production.

d. That the enhanced recovery project or supplemental enhanced recovery project be implemented on or after January 1, 1985.

(a)(1) There is hereby levied, to be collected hereafter, as herein provided, annual privilege taxes upon every person engaging or continuing to engage within the State of Alabama in the business of producing or severing oil or gas, as defined herein, from the soil or the waters, or from beneath the soil or the waters, of the state for sale, transport, storage, profit or for use. The amount of such tax shall be measured at the rate of eight percent of the gross value of said oil or gas at the point of production except as provided in subsequent subdivisions of this subsection.

(2) Effective May 1, 1985, and thereafter, the incremental oil or gas production produced during a given year resulting from a qualified enhanced recovery project shall be taxed at the rate of four percent of gross value at the point of production of said incremental oil or gas production. The State Oil and Gas Board of Alabama shall approve the qualified enhanced recovery project and the determination of the projected annual oil or gas production that could have otherwise been produced without the benefit of the initiation of said qualified enhanced recovery project at a hearing held pursuant to Section 9-17-7, as amended, and shall notify the Alabama Department of Revenue thereof.

(3) All wells producing 25 barrels or less of oil per day or producing 200,000 cubic feet or less of gas per day shall be taxed at the rate of four percent of gross value of said oil or gas at the point of production.

(4) All oil and gas produced from onshore discovery wells, all oil and gas produced from onshore development wells on which drilling commenced within four years of the completion date of the discovery well and producing from a depth of 6,000 feet or greater, and all oil and gas produced from onshore development wells on which drilling commenced within two years of the completion date of the discovery well and producing from a depth less than 6,000 feet shall be taxed at a rate of six percent of the gross value of said oil and gas at the point of production for a period of five years from the date production begins from said discovery and development wells, provided, that all production to receive a six percent tax rate, which is produced from discovery wells, must be from discovery wells permitted by the State Oil and Gas Board of Alabama after July 1, 1984, and that all production to receive a six percent tax rate from development wells on which drilling commenced within the required time of completion of a discovery well, which was permitted after July 1, 1984, and said development well must also have been permitted after July 1, 1984; provided however, that the six percent tax rate applicable to a discovery well or development well shall be applicable to any replacement well drilled to replace the discovery well or the development well during the six percent five-year, tax rate period for only the remainder of the said tax rate period.

(5) All oil or gas produced by offshore production, as defined herein, at depths greater than 18,000 feet below mean sea level, shall be taxed at the rate of six percent of the gross value of said oil or gas production at the point of production.

(6) [Expired by Acts 1984, No. 84-672, p. 5, §2. See Code Commissioner's Notes]

(7) For any well for which the initial permit issued by the Oil and Gas Board is dated on or after July 1, 1988, except a replacement well for a well for which the initial permit issued by the Oil and Gas Board is dated before July 1, 1988, the rates provided in subdivisions (1) and (5) of this subsection shall be reduced by 2 percent.

(8) For any well for which the initial permit issued by the Oil and Gas Board is dated on or after July 1, 1996, and before July 1, 2002, except a replacement well for a well for which the initial permit issued by the Oil and Gas Board is dated before July 1, 1996, the applicable rate shall be reduced by 50 percent for a period of five years commencing with commercial production after which subdivision (7) shall apply.

(b) The tax is hereby levied upon the basis of the entire production in this state, including what is known as the royalty interest, on which production the amount of such tax shall be a lien, regardless of the place of sale or to whom sold, or by whom used, or the fact that the delivery may be made to points outside the state; and the tax shall accrue at the time such oil or gas is severed from the soil or the waters, or from beneath the soil or the waters, and in its natural, unrefined or unmanufactured condition. Provided, however, that natural gas lawfully injected into oil or gas pools or reservoirs in the soil or beneath the soil or waters of the State of Alabama is exempt from this tax. Provided, further, that natural gas lawfully injected into the earth for the purpose of lifting oil or gas in the State of Alabama is exempt from this tax. However, if any gas so injected into the earth is sold for such purposes or injected into underground storage facilities as defined in Section 9-17-150 et seq., then the gas so sold or injected shall not be exempt from this tax. Natural gas lawfully vented or flared in connection with the production, treatment, or processing of oil or gas is exempt from this tax.

(c) A county, city, town or municipality of the State of Alabama shall not establish, levy, impose or collect, as a condition of doing business or otherwise, any tax, fee, license or charge whatsoever, directly or indirectly, on or with respect to the production, treating, processing, ownership, sale, storage, purchase, marketing or transportation on any oil or gas produced in the State of Alabama and on which severance taxes have been paid to the State of Alabama, or upon the business of producing, treating, processing, owning, selling, buying, storing, marketing or transporting such oil or gas, or upon the ownership, operation or maintenance of plants, facilities, machinery, pipelines, gathering lines or any equipment whatsoever, which are, or may be, necessary or convenient to the production, treating, processing, ownership, storage, sale, purchase, marketing or transportation of such oil or gas; provided, that nothing herein shall be construed to prohibit, limit or restrict a county, city, town or municipality from imposing and collecting ad valorem taxes on any property, real or personal, not otherwise now exempted by law; further, the limitation herein imposed upon counties, cities, towns and municipalities shall not apply to any county, city, town or municipality which does not receive a share of the severance tax levied upon production other than offshore production as defined in Section 40-20-1 under the provisions of this article. Said limitation herein imposed upon counties, cities, towns and municipalities shall remain in full force and effect in regard to offshore production as defined in Section 40-20-1.

(d) Nothing contained herein shall be deemed to limit or to enlarge the authority of a county, city, town or municipality to levy taxes or licenses on oil refining facilities located therein or on the suppliers of services or goods not including oil or gas to those persons engaging in the business of producing, treating, processing, owning, selling, buying, storing, marketing or transporting such oil or gas. Provided, however, no such taxes or licenses shall be levied on offshore drilling or production facilities as defined in Section 40-20-1.

(e) In all cases of production of oil from unit operations as authorized and approved by the State Oil and Gas Board of Alabama, for purposes of computing the per well production aforesaid, the aggregate production of oil from the entire unit shall be divided by the number of wells within the unit, including injection, disposal and other wells utilized in unit operations, and the quotient thereof shall be deemed and declared to be the number of barrels of oil produced from each well in such unit regardless of the actual amount of oil per day produced from the well, if any.

(a) The privilege tax hereby imposed is levied upon the producers of such oil or gas in the proportion of their ownership at the time of severance, but, except as otherwise herein provided, the tax shall be paid by the person in charge of the production operations, who is hereby authorized, empowered, and required to deduct from any amount due to producers of such production at the time of severance the proportionate amount of the tax herein levied before making payments to such producers. The tax shall become due and payable as provided by this article and such tax shall constitute a first lien upon any of the oil or gas so produced when in the possession of the original producer or any purchaser of such oil or gas in its unmanufactured state or condition. In the event the person in charge of production operations or the purchaser fails to pay the tax, then the department shall proceed against the producer or the purchaser to collect the tax in the manner hereinafter provided by this article.

(b) When any person in charge of production operations shall sell the oil or gas produced by him, the purchaser shall account for the tax.

(c) When any person in charge of production operations shall use or dispose of the oil or gas for fuel or any other purpose, he shall withhold the tax imposed by this article; and, if he is required to pay other interest holders, he is hereby authorized, empowered, and required to deduct from any amounts due them the amount of tax levied and due under the provisions of this article before making payment to them.

(d) Every person in charge of production operations by which oil or gas is severed from the soil or waters, or from beneath the soil or waters, of the State of Alabama who fails to deduct and withhold, as required herein, the amount of tax from sale or purchase price, when such oil or gas is sold or purchased under contract or agreement, or on the open market, or otherwise, shall be liable to the state for the full amount of taxes, interest and penalties due the state; and the department shall proceed to collect the tax from the person in charge of production operations, under the provisions of this article, as if he were the producer of the oil or gas.

(a) The department is hereby authorized and directed to administer and enforce the provisions of this article and to collect all of the taxes levied under the provisions hereof. Every person producing or in charge of production of oil and gas shall file a return with the department by the 15th day of the second calendar month following the month of production, on forms the department prescribes which must contain a printed declaration that the information being reported is made under the penalty of perjury, and which must be subscribed by the person who completes such forms, showing the location of each producing property operated or controlled by such producer during the reporting period; the number and kind of wells thereon; the kind of oil or gas produced; the gross quantity thereof produced; the actual cash value thereof at the time and place of production; including any and all premiums received from the sale thereof; the amount of tax due on the total gross production; the portion of gross production payable as royalty and such other information as the department may require.

(b) All persons engaged in the business of severing oil or gas are hereby required to keep full and complete records showing the nature, character, and volume of all such oil or gas severed, the value of such oil or gas at the point of production, the manner in which such oil or gas was disposed of, the prices or the consideration received for the sale thereof and the quantity or volume of such oil or gas stored anywhere within or without the State of Alabama; and such records shall at all reasonable times be open for inspection by representatives or agents of the department.

(c) The department or its duly authorized representative or agent shall have the power and authority to inspect all records required to be kept under the provisions of this article, to conduct hearings and to compel the attendance of witnesses for the purpose of determining the amount of taxes due under the terms and provisions of this article.

(d) The Department of Revenue is hereby authorized to promulgate reasonable rules and regulations relating to the administration and enforcement of this chapter, provided, however, that no rule or regulation adopted or promulgated by the department shall alter, limit, extend or be out of harmony with any of the provisions of this chapter.

All reports required under the provisions of this article shall be filed with the department on or before the fifteenth day of the second calendar month following the month of production and shall cover the second preceding calendar month. All producers are hereby required to pay to the department all taxes accruing under the provisions of this article for the period of time covered by the report herein required, and such payment shall accompany the required report.

Such amount of money as shall be appropriated for each fiscal year by the Legislature to the Department of Revenue with which to pay the salaries, the cost of operation and the management of the said department shall be deducted, as a first charge thereon, from the taxes collected under and pursuant to this article; provided, that the expenditure of said sum so appropriated shall be budgeted and allotted pursuant to Article 4 of Chapter 4 of Title 41, and limited to the amount appropriated to defray the expenses of operating said department for each fiscal year. The net remainder shall remain in the State Treasury for distribution as hereinafter provided.

(a) Ninety percent of the net amount of all taxes herein levied and collected by the department on oil or gas produced from submerged lands as herein defined shall be deposited to the State General Fund. The remaining 10 percent on such net amount shall be allocated and distributed by the Comptroller to the county in which the oil or gas was produced for county purposes or to be expended at the discretion of the county governing body.

(b) Twenty-five percent of the net amount of all taxes herein levied and collected by the department except as provided herein in subsection (a) shall be deposited by the department to the General Fund of the state.

(c) Sixty-six and two-thirds percent of the remaining 75 percent of all taxes herein levied and collected by the department, after the same has been certified into the State Treasury, shall be allocated and distributed by the Comptroller to the credit of the General Fund of the state and to the county in which the oil or gas was produced and to the municipalities therein in the proportion set out in the following schedule:

(1) Twenty-five percent of all taxes herein levied and collected on oil and gas produced from oil or gas wells located within any county, shall be allocated and distributed to each such county for county purposes or to be expended at the discretion of the county governing body. In all counties having a population of not less than 34,875 nor more than 36,000, according to the 1970 Federal Decennial Census, such funds shall be allocated and distributed by the counties to the boards of education of the public schools in such counties on a pro rata basis as established by the number of children in net enrollment in the public schools during the prior school attendance year. In all counties having a population of not less than 16,000 nor more than 16,250, according to the 1970 Federal Decennial Census, such funds shall be allocated and distributed by the counties as follows: Each year the first $150,000 shall be paid to the custodian of the county school funds, and after the payment of said $150,000 each year, the balance of said funds shall be divided and paid one-third to the custodian of the county school funds and two-thirds to the county general funds.

(2) Ten percent of all taxes herein levied and collected on oil and gas produced from oil or gas wells located within the corporate limits or the police jurisdiction of any municipality shall be allocated and distributed to each such municipality; except that all wells within the corporate limits of police jurisdiction of any municipality where taxes are levied and collected at a rate of four percent, 10 percent of all said four percent taxes shall be distributed to each such municipality.

(3) Fifty percent of the first $150,000 remaining, or any part thereof, collected per year under the provisions of this article, shall be allocated and distributed to the state, 42 1/2 percent to the county and seven and one-half percent to municipalities therein on a population basis.

(4) Eighty-four percent of all remaining sums collected per year under the provisions of this article shall be allocated and distributed to the state, 14 percent to the county and two percent to municipalities therein on a population basis.

(d) Sixteen and two-thirds percent of the remaining 75 percent of all taxes herein levied and collected by the department shall be certified into the State Treasury to the credit of the State General Fund.

(e) Sixteen and two-thirds percent of the remaining 75 percent of all taxes herein levied and collected by the department on oil and gas produced from oil or gas wells located within any county shall be allocated and distributed to each such county for county purposes, to be expended at the discretion of the county governing body.

(f) For the purposes of this section, when part of the property within the drilling or production unit or within the unit area for any producing well(s) consists of submerged lands and part consists of lands other than submerged lands (herein called onshore lands), the following shall apply:

(1) Only that portion of production (oil or gas or both) from said well(s) allocated (under or pursuant to an order of the State Oil and Gas Board) to the submerged lands shall be deemed to have been produced from submerged lands, regardless of where the actual well(s) from which said production was obtained is (are) located;

(2) The portion of said production allocated (under or pursuant to an order of the State Oil and Gas Board) to the onshore lands shall be deemed to have been produced from a well located on the onshore lands to which such production is allocated, and the portion of said production allocated (under or pursuant to such an order) to any onshore lands located within the police jurisdiction or the corporate limits of any municipality shall be deemed to have been produced from a well located within said corporate limits or police jurisdiction;

(3) If, because of common ownership or otherwise, no specific portion of the production from said well(s) has been separately allocated (under or pursuant to an order of the State Oil and Gas Board) to any or all of the onshore lands located within said drilling or production unit or within a designated tract in said unit area, then, for the purposes of this section, a portion of said production shall be deemed to have been allocated (under or pursuant to such an order) to the onshore lands in question, such portion to be in the proportion that the acreage of said onshore land to which no specific portion of the production has been separately allocated bears to the total acreage included within the unit or designated tract (whichever is applicable); and

(4) Any production not allocated to or deemed to have been allocated to the onshore lands shall be deemed to have been allocated (under or pursuant to an order of the State Oil and Gas Board) to the submerged lands.

(g) Anything herein to the contrary notwithstanding, onshore lands shall mean all lands that are not submerged lands (as elsewhere herein defined); provided, however, if any submerged lands are located within the police jurisdiction or corporate limits of any municipality, those submerged lands shall, for the purposes of this section, be defined as, and deemed to be, onshore lands and not submerged lands.

(h) The provisions of this section shall apply only to the allocation and distribution of taxes and shall not apply to the levy and collection of taxes; and nothing contained in this section shall be construed to affect in any way the provisions of Section 40-20-2.

(i) A final determination establishing the allocation base shall be made within 90 days of April 23, 1990.

All reports required to be filed under the provisions of this article shall be made on blanks, furnished by the department, which shall contain the following certificate: 'I hereby certify under oath that I am duly authorized to make this tax return; that the information herein contained is true and correct and same is shown by the records of the identified producer; and that the amount of taxes accompanying this return is the true and correct amount of taxes due the State of Alabama by this producer.' The same must be duly verified.

If it is brought to the attention of the department that any producer is guilty of violating any of the provisions of this article, the department is hereby authorized and required, through lawfully authorized counsel, to proceed in the courts of the state to obtain a writ of injunction, which writ shall be granted by the court when applied for in the manner prescribed by law. The department, however, is hereby relieved of the requirement to furnish bond of any character.

(a) All oil or gas produced, all leases in production, including mineral rights in producing properties, and all oil or gas under the ground on producing properties within the State of Alabama shall be exempt from all ad valorem taxes now levied or hereafter levied by the State of Alabama or by any county or municipality. No additional assessment shall be added to the surface value of such lands by the presence of oil or gas thereunder or its production therefrom.

(b) For the purpose of this article, the area of a lease or leases, including oil and gas rights considered to be in production, or the area of any other producing property considered to be in production, shall include an oil or gas drilling unit as established by the State Oil and Gas Board of Alabama and shall be exempt from ad valorem taxation because of production from any one well.

If the department is authorized by any other law to collect any further or additional taxes from producers, as herein defined, such taxes shall be collected in the same manner as the taxes herein provided, and the return of such taxes shall be included in the report for the taxes herein levied and provided. Such further or additional taxes shall be disbursed as authorized by such other law.

(a) Findings. The Legislature finds and declares as follows:

(1) Certain industries ought to be encouraged to consume gas produced in the state by permitting producers of gas to obtain a credit against severance tax to the extent that the value of such credit results in the reduction of the cost of the gas to such industries.

(2) The granting of such a credit will encourage certain industries that are major consumers of gas to purchase gas from producers or intermediate suppliers that extract or purchase gas from wells in Alabama subject to the severance tax.

(3) Due to the fungible nature of gas and the commingling of gas from various sources that typically occurs in the transportation of gas through a network of shared pipelines, a DRI manufacturer should not be required to trace gas from its source in order to benefit from a cost reduction based on the credit, provided that it can be shown that at least the amount of gas with respect to which the credit is granted has been produced by the taxpayer, at least the amount of gas with respect to which the credit is granted is supplied to the DRI manufacturer, and in the case of an intermediate supplier, that the intermediate supplier has purchased at least the amount of gas with respect to which the credit is granted from the taxpayer and the intermediate supplier has sold at least the amount of gas with respect to which the credit is granted to the DRI manufacturer.

(4) 7.4% of the deemed taxable value of the gas is a reasonable approximation of the severance tax that is levied, collected and distributed to the General Fund of the state, being the severance tax levied by Section 9-17-25 plus the severance tax levied by this article on gas produced from wells on submerged lands.

(b) Definitions. The following terms, as used in this section, are defined as stated below:

(1) CAPITAL COST. The cost for federal income tax purposes of the DRI plant determined upon plant completion, as certified by the DRI manufacturer to the department, determined without regard to depreciation or amortization of any kind.

(2) DEEMED TAXABLE VALUE. The gas amounts, as shown on the monthly tax forms O&G Production-2 or O&G Offshore-2, in the column labeled “PRODUCER'S NET TAXABLE VALUE” divided by the gas amounts in the column labeled “PRODUCER'S LIABILITY-VOLUME.”

(3) DRI. Direct reduced iron, being iron produced from iron ore by chemical reaction with gas.

(4) DRI MANUFACTURER. A manufacturer of DRI at a DRI plant in a process utilizing gas, provided that:

a. As of the date of plant completion, the manufacturing process takes place on a site owned by the Alabama State Docks Department;

b. As of the date of plant completion, the DRI manufacturer has engaged the Alabama State Docks Department to provide cargo handling services with respect to iron ore that provides the raw material for the production of the DRI; and

c. The production of DRI in the state by the DRI plant commenced no earlier than October 1, 1997.

(5) DRI PLANT. The land, buildings, facilities, equipment, leasehold improvements, and other tangible property, real or personal, owned or leased by the DRI manufacturer for the purpose of producing DRI.

(6) GAS. All natural gas, including casinghead gas, and all other hydrocarbons not defined as oil in Section 40-20-1(4).

(7) GAS CONSUMPTION VOLUME. For any reporting period, an amount, stated in mcf, equal to the lesser of the following:

a. The amount of gas consumed by the DRI manufacturer at the DRI plant, as certified by the DRI manufacturer to the taxpayer, or

b. Either

1. If gas is supplied by the taxpayer to the DRI manufacturer, the amount of gas supplied by the taxpayer to the DRI manufacturer, or

2. If gas is supplied by an intermediate supplier to the DRI manufacturer, the lesser of

(i) the amount of gas sold by the taxpayer to the intermediate supplier, or

(ii) the amount of gas supplied by the intermediate supplier to the DRI manufacturer.

(8) INTERMEDIATE SUPPLIER. Any person that a. purchases gas from a taxpayer or from another intermediate supplier that in turn purchased from a taxpayer and b. supplies gas to a DRI manufacturer.

(9) MCF. The volume of gas, measured in units of one thousand cubic feet, using the same temperature, pressure, and heating value as the gas reported on the producer's monthly severance tax returns.

(10) NET PRESENT VALUE. Discounted present value, determined as of plant completion, at an interest rate of 6% per annum, of reductions in the cost of gas as described in subdivision (8) of subsection (e) realized by a DRI manufacturer with respect to a DRI plant.

(11) PERSON IN CHARGE OF PRODUCTION OPERATIONS. The person in charge of the production operations, as such term is used in Section 40-20-3.

(12) PLANT COMPLETION. The date, as certified to the department by the DRI manufacturer, that a DRI plant is completed.

(13) REPORTING PERIOD. The period of time with respect to which severance taxes are calculated, returns are filed, and severance taxes are periodically paid, being each calendar month under current law.

(14) SEVERANCE TAX. The annual privilege tax levied by Section 40-20-2 on the production or severance of gas and the tax levied by Section 9-17-25 on natural gas produced for sale, transport, storage, profit or for use from any well or wells in the state.

(15) SEVERANCE TAX CREDIT. For any reporting period, 7.4% of the deemed taxable value multiplied by the gas consumption volume.

(16) TAXPAYER. Any producer or person in charge of production operations or any other person that is otherwise required to deduct, withhold, pay, or account for severance tax on gas produced and sold to an intermediate supplier or a DRI manufacturer, provided that with respect to any reporting period, such taxpayer:

a. Is obligated to pay severance tax, or would be so obligated but for the provisions of this section; and

b. Has entered into an agreement with a DRI manufacturer and/or an intermediate supplier, if applicable, to reduce the cost of gas sold by the taxpayer to the DRI manufacturer or, if applicable, the intermediate supplier by an amount equal to the severance tax credit for such reporting period.

(c) Credits. With respect to any DRI plant owned by a DRI manufacturer, a taxpayer shall be allowed a credit against severance tax otherwise owed with respect to the applicable reporting period equal to the severance tax credit. With respect to any DRI plant, this credit shall commence on the later of (1) June 1, 1998, or (2) plant completion, and shall continue until the net present value of the cost reductions of gas to the DRI manufacturer described in subdivision (8) of subsection (e) shall equal the lesser of (1) 4% of the capital cost of the DRI plant or (2) four million seven hundred thousand dollars ($4,700,000).

(d) Certificate. Upon request by a DRI manufacturer, the department shall provide the DRI manufacturer with a certificate, which shall be numbered and shall state (1) the lesser of a. 4% of the capital cost of the DRI plant or b. four million seven hundred thousand dollars ($4,700,000), as appropriate, as certified to the department by the DRI manufacturer, and (2) the completion date of the DRI plant certified by the DRI manufacturer to the department.

(e) Returns. Any taxpayer claiming the severance tax credit for a reporting period shall file a schedule with its severance tax returns for such reporting period stating the following:

(1) The number assigned by the department to the DRI plant.

(2) The name of the DRI manufacturer.

(3) The name of the intermediate supplier, if any.

(4) The amount of gas, measured in mcf, supplied by the taxpayer to the DRI manufacturer or the intermediate supplier, as applicable.

(5) The gas consumption volume certified to the taxpayer by the DRI manufacturer.

(6) The deemed taxable value of the gas.

(7) The amount of the severance tax credit.

(8) A certification that the cost of the gas sold to the DRI manufacturer or intermediate supplier, as applicable, has been reduced by an amount equal to the severance tax credit.

(9) A certification that the severance taxes calculated by the taxpayer have been determined on the deemed taxable value of the gas consumption volume without regard to the reduction in cost described in subdivision (8) of subsection (e), all in accordance with subsection (h).

(10) A certification signed by an officer of the DRI manufacturer under oath, stating:

a. The lesser of 1. the amount of gas consumed by the DRI manufacturer in the DRI plant and 2. the amount of gas supplied to the DRI manufacturer by the taxpayer or intermediate supplier, as applicable as certified by the DRI manufacturer to the taxpayer;

b. The dates and amounts of the cost reduction in gas otherwise subject to Alabama severance tax liability realized by the DRI manufacturer with respect to the DRI plant by virtue of the severance tax credit from plant completion through the end of the severance tax period in question;

c. The net present value of the deemed taxable value reductions to the end of the severance tax period in question;

d. A certification that a cost reduction in an amount equal to the severance tax credit has been or has been agreed to be given over to the DRI manufacturer or to the intermediate supplier and from the intermediate supplier to the DRI manufacturer, if applicable; and

e. The name of the intermediate supplier.

(11) The tax credit will be reported by the taxpayer as a one line reduction of the total severance taxes payable on the Department of Revenue, Sales, Use & Business Tax Division, Oil and Gas Offshore Producer's Tax Return forms, designated “O&G Offshore-1” and “O&G Production-1.” The taxpayer will not be required to report the tax credit on any other Department of Revenue Sales, Use & Business Tax Division forms, schedules, supplements, or worksheets.

(12) No additional forms will be required to be filed by the taxpayer with the Department of Revenue Sales, Use & Business Tax Division other than the schedule provided for in this subsection.

(f) Multiple taxpayers or intermediate suppliers. Should a DRI manufacturer or intermediate supplier acquire gas from more than one producer or person in charge of production that is otherwise subject to severance taxes, the DRI manufacturer may designate one or more than one such producer or person in charge of production as the taxpayer and may allocate gas consumption volume certified to the taxpayer by the DRI manufacturer among all such designated persons on any basis elected by the DRI manufacturer, provided, however, that the gas consumption volume allocated to any taxpayer in the applicable reporting period shall not exceed the lesser of (1) the amount of gas subject to severance tax supplied by the taxpayer during the reporting period to the DRI manufacturer or intermediate supplier, or (2) the amount of gas which the intermediate supplier has received from the taxpayer and which is otherwise subject to Alabama severance tax liability during the reporting period. Should a DRI manufacturer acquire gas from more than one intermediate supplier, the DRI manufacturer may allocate gas consumption volume among all such intermediate suppliers on any basis elected by the DRI manufacturer, provided, however, that the gas consumption volume allocated to any intermediate supplier in any reporting period shall not exceed (1) the lesser of the amount of gas supplied by the intermediate supplier to the DRI manufacturer during the reporting period or (2) the amount of gas the intermediate supplier received from the taxpayer, which amount is otherwise subject to the severance tax.

(g) Effect on allocation and distribution. The amount of the severance tax credit shall be charged against the net amount of tax revenues payable to the State General Fund under Sections 9-17-31 and 40-20-8 and shall not reduce the amount of severance tax revenues allocated and distributed to any county, municipality, school board, or custodian of school funds.

(h) No effect on severance tax base. In determining the amount of severance tax liability for any reporting period, no taxpayer shall reduce the taxable value of gas by the amount of the severance tax credit or the cost reduction to the DRI manufacturer or intermediate supplier, as applicable, resulting from the severance tax credit, but rather, the severance tax credit shall be allowed and calculated only after determination of the amount of the severance tax otherwise payable for the reporting period and before any cost reduction under this section.

(i) The provisions of this section shall expire as to DRI plants having a completion date after September 30, 2008, unless the provisions of this section shall be extended by further act of the Legislature.

(j) This section shall be construed liberally in favor of the DRI manufacturer, for the purpose of assuring that any qualifying DRI manufacturer receives the benefit of the cost reduction described in this section.

For the purpose of this article, the following terms shall have the respective meanings ascribed by this section:

(1) OIL, GAS AND OTHER MINERALS. Oil, gas, petroleum, hydrocarbons, distillate, condensate, casing-head gas, other petroleum derivatives and all other similar minerals of commercial value which are usually produced by the drilling, boring or sinking of wells.

(2) MINERAL ACRE and ROYALTY ACRE. The number of acres obtained by multiplying the aggregate acreage described in the instrument involved by the fractional interest leased or conveyed thereby.

(3) PRIMARY TERM. In connection with any instrument affected by this article shall mean the period of time that the estate created by such instrument shall endure under the terms thereof in the absence of production of oil, gas or other minerals in paying quantities, the carrying on of drilling or reworking operations for the production of such oil, gas or other minerals, force majeure or laws, rules or regulations, federal or state, preventing such drilling operations.

There is hereby levied and shall be paid and collected as herein set forth a documentary or transfer tax, to be known as the mineral documentary tax, upon the filing and recording of every lease and other writing hereafter executed whereby there is created a leasehold interest in and to any nonproducing oil, gas or other minerals in, on or under or that may be produced from any lands situated within the State of Alabama, or whereby any such interest is assigned or is extended beyond the primary term fixed by the original instrument, and upon every deed, instrument, transfer, evidence of sale or other writing whereby there is hereafter conveyed to a grantee or purchaser, or excepted or reserved to a grantor separately and apart from the surface, any interest in or right to receive royalty from any nonproducing oil, gas or other minerals in, on or under or that may be produced from any lands within the State of Alabama; provided, that the tax shall not apply to any mortgage or instrument creating a lien upon such interest, nor to the sale under foreclosure thereof.

Such tax shall be a lien upon the interest leased, assigned, conveyed, reserved, excepted or transferred, and the amount to be paid shall be determined as follows; provided, that the minimum tax shall be $1:

(1) Upon the filing and recording of each instrument creating, assigning or transferring a leasehold, or interest therein or any portion thereof, or conveying, transferring, excepting or reserving a mineral or royalty interest as above described, the primary term of which shall expire 10 years or less from the date of execution of the instrument, the tax shall be a sum equal to $.05 per mineral or royalty acre conveyed, leased, assigned, excepted, reserved or transferred therein.

(2) Such tax shall be $.10 per mineral or royalty acre if the primary term of such interest shall expire more than 10 years and not exceeding 20 years from the date of the execution of such instrument.

(3) Such tax shall be $.15 per mineral or royalty acre if the primary term of such interest may or shall extend more than 20 years from the date of the execution of such instrument.

Such tax shall be payable by the grantee or grantees named or the beneficiary or real party in interest under such lease, deed, conveyance, transfer, assignment or other writing; except, that as to any exception or reservation creating any such interest the same shall be payable by the grantor or grantors in such instrument. Said tax shall be due and payable upon the filing of such instrument for record. Any probate judge who accepts or records such an instrument upon which the tax is not paid to him in the amount required herein shall be liable to the county for the amount of tax shown to have been due upon the instrument. The amount shall likewise constitute a lien upon the interest so conveyed, reserved or accepted by such instrument, collectible as are other delinquent taxes due the county. If an insufficient amount is paid by such tax, the filing and recording of the instrument shall nevertheless be good and valid for all purposes as now provided by statute and shall be a valid exemption from ad valorem taxes.

The probate judge shall collect the said tax, shall duly record the instrument and make the hereinafter required notation of tax payment.

Such tax shall be paid to the probate judge of the county in which the land affected by the sale, lease or reservation or other instrument of such oil, gas or other minerals is situated, and the said judge shall stamp or write the name of the county and the amount of tax paid on the face of the instrument when filed for recording and shall show upon the face or margin of the record thereof the amount of tax paid.

The mineral documentary tax levied above shall be in lieu of all ad valorem taxes and all nonproducing leasehold interests upon all oil, gas and other minerals in, on or under lands lying within the State of Alabama, created or assigned after October 12, 1957, and also all nonproducing interests in such oil, gas and other minerals, including royalty interests therein, hereafter conveyed to a grantee or purchaser or excepted or reserved to a grantor separately and apart from the surface shall be exempt from all ad valorem taxes levied on or after October 1, 1957, by the State of Alabama, or any county, municipality, school district, or other taxing district within the state or becoming a lien on or after said date. Any sale for taxes of the surface or of the remainder of the fee shall not in any manner whatsoever affect the interest or interests hereby exempted.

For the same purpose and with like effect there is hereby likewise exempted from such ad valorem taxation all such interests created prior to October 12, 1957, which are owned separately and apart from the surface; provided, that as a condition precedent to obtaining such exemption upon existing interests the then owner or owners thereof shall make application for exemption of the interest then owned by him or them as hereinafter provided and pay a sum equivalent to the tax herein levied by this article on instruments hereafter executed creating, transferring or reserving corresponding or similar interests. As to any existing interests, if any such sum is paid after October 1, 1957, then such exemption shall apply only to taxes becoming a lien after such sum is thus paid. The number of years remaining before the expiration of the primary term of such previously created mineral interest shall be considered as the primary term of such interest for the purpose of determining the amount of such tax.

Application for such exemption upon existing interests shall be made to the probate judge of the county wherein the land lies in which such interest is owned, by filing application in triplicate with the said judge, which shall contain the following information:

(1) Name of applicant;

(2) Address of applicant;

(3) Complete description of land affected, including aggregate acreage;

(4) Fractional interest for which exemption is applied and nature of such interest;

(5) Recording data concerning the instrument creating the interest including grantor or lessor, grantee or lessee, date of instrument, book and page of record, and date of filing;

(6) Length of primary term;

(7) Recording data on instruments divesting original party of any interest, including subsequent assignments thereof in a portion of original interest therein conveyed;

(8) Number of mineral, royalty or lease acres on which exemption sought; and

(9) Amount tendered therewith.

Upon receipt of such application, accompanied by the sum shown therein, the probate judge shall give it a serial number and mark it filed, showing the date received. The judge shall make a notation on the face of the application and on the record of the instrument described in the application showing the date of payment, amount of tax paid and the serial number of the application. After such notation is made, the original application shall be returned to the applicant by mailing it to him at the address shown on the application or delivered otherwise to the applicant; the first copy of the application shall be retained by the judge as his permanent record, and the second copy of the application, together with a certificate of the amount of taxes paid thereon, shall be sent by the judge to the tax assessor of the county.

If it later is ascertained that an insufficient amount was paid with the application for the exemption provided herein, such exemption shall not be thereby rendered void, but the additional amount which should have been paid, together with a penalty of 25 percent and one percent interest per month thereon from the date of the application until paid shall be a lien on the interest exempted and a personal debt of the applicant collectible by civil action for appropriate personal judgment and to enforce the lien, which may be maintained by the county to which such sum should have been paid.

From the taxes levied and collected under this article, there shall be paid into the county general fund, or to the judge of probate if he is on a fee basis, five percent as a cost of collection thereof. The remainder shall be distributed as follows: 35 percent to the county general fund; 35 percent to the county public school fund and 30 percent to the State General Fund. Such payment shall be made on or before the fifteenth day of the month next succeeding that in which collection may be made.

Any laws or parts of laws to the contrary notwithstanding, any annual privilege tax levied upon persons engaging in the business of producing or severing oil or gas or other hydrocarbons from the soil or waters of this state measured by the gross value of such oil or gas or other hydrocarbons and which tax is applicable only in a particular county and under which collections were being made on January 1, 1987, or which shall hereafter be levied pursuant to legislative act, shall be continued and collected only as herein prescribed:

(1) All revenues collected from such local severance taxes shall, beginning the first day of the month following August 3, 1987, be paid into the general fund of the county exclusively for transfer and deposit into a trust fund hereby established until the total sum of $15,000,000 in severance tax revenues of the type described in this section, excluding any interest income on amounts deposited therein from such total sum, has been deposited into such trust fund. Upon the deposit into said trust fund of a county of a total of $15,000,000 in such severance tax revenues, any local law authorizing or levying such tax, including, without limitation, Act No. 2120, H. 2450, Regular Session 1971 (Acts 1971, Vol. V, p. 3399), shall stand repealed and no further taxes shall be levied thereunder. Any such local oil and gas severance tax revenues in excess of such $15,000,000 amount collected in any county after the time the total of such tax proceeds paid into such trust fund established hereby for such county shall reach $15,000,000, shall be refunded as promptly as shall be reasonably practicable to the payers thereof. The county governing body shall not be authorized to make any expenditure from any monies composing the corpus of said trust fund so long as it shall remain in existence. Said trust fund shall be designated in each county as the 'county oil and gas severance tax trust fund,' and is hereinafter referred to as the 'trust fund.'

(2) Commencing with the first year in which any trust fund provided for in this section shall receive deposits as required hereunder, and in each year thereafter, the county governing body shall take steps to ensure that the trust fund shall retain the total severance tax revenues paid therein plus ten percent of any net income or interest generated by the investment of such severance tax revenues, which sum shall be and become a part of the corpus of the trust fund. A sum, not to exceed 90 percent of the net income or interest thereby generated from said investments, shall be distributed quarterly, semiannually or annually, as designated by the trustees of the trust, to the general fund of the county for which a trust fund is established pursuant to this section.

(3) The county governing body shall constitute the trustees of the trust, provided, however, that the said governing body may in its discretion appoint one or more trustees or escrow agents for the trust, which trustees or escrow agents shall be trust companies or national or state banks having powers of a trust company within or without the State of Alabama. The trustees shall invest the corpus of the trust only in direct general obligations of, or obligations the payment of the principal of an interest on which are unconditionally and irrevocably guaranteed by, the United States of America. Provided, however, that notwithstanding any legal limitation that might otherwise be applicable, the trustees shall further have the authority in their discretion to invest such trust fund in certificates of deposit of any savings and loan associations or banks, whether federally or state chartered, whose principal office is located in this state, provided that such funds so invested are fully secured by pledges of securities of the type described in the immediately preceding sentence hereof.

(4) Upon the deposit into a trust fund established pursuant to this section of the total sum of $15,000,000 in severance tax revenues of the type described in this section, excluding any interest as income in such total sum, and the consequent repeal of the local law authorizing or levying such tax, the county governing body of a county for which a trust fund established hereunder shall be in existence shall be thereafter prohibited from levying or collecting, directly or indirectly, any local county severance tax of the type described in this section that was in existence prior to January 1, 1987, or that may be established hereafter, and any act authorizing such county oil and gas severance tax shall thereafter stand repealed.