The following comments were submitted by IOGA to the Department of Revenue regarding the proposed rules pertaining to the Illinois Hydraulic Fracturing Tax Act:


June 14, 2017

Ms. Sarah Engelbrecht
Project Manager Hydraulic Fracturing Tax Act
[email protected]

Mr. Richard Wolters
Counsel Department of Revenue
[email protected]

IN RE: Illinois Hydraulic Fracturing Tax Act (35 ILCS 450 et seq) Updated draft rules

Dear Ms. Engelbrecht and Mr. Wolters:

I am the Executive Vice President of the Illinois Oil and Gas Association (IOGA). The IOGA was organized in 1944 to provide an agency through which oil and gas producers, landowners, royalty owners, and others who may be directly or indirectly affected by or interested in oil and gas development and production in Illinois may protect, preserve and advance their common interest. In this role, I have reviewed your proposed draft rules for the Illinois Hydraulic Fracturing Tax Act and make the following comments:

• The Hydraulic Fracturing Regulatory Act and the Illinois Hydraulic Fracturing Tax Act, while comprehensive and detailed, are really quite simple with respect to the taxation aspects. The first purchasers of the crude provide information, collect the tax, and report to the Department of Revenue. Operators of wells not subject to either Act file a simple exemption certificate with the first purchaser. With respect to most of the first purchasers, the exemption process has been ongoing for some time.

• Your draft rules are complex and appear to go considerably above and beyond what is authorized by the Acts. The Acts were carefully crafted by numerous representatives of the legislative bodies, oil and gas Industry, and the environmental community. Language was utilized based upon the existing Industry practices. Information needed to comply with the requirements, especially for the exemption certificates, would be readily available.

• Your emphasis on wells rather than production units (the division order description maintained by the operator and the first purchaser) creates a very difficult, time consuming and costly process for compliance. The information that you are requesting will not provide you with any more useful information than that which is currently required by the Acts.

• Your draft rules are less than clear as to who is to respond to your information collection requirements. These requirements should only apply to operators who have applied for and received permits for wells as defined by the Acts. Your proposed rules could be interpreted as being applicable to every well in the State of Illinois. As you know, there are over 22,000 wells. Your rules should be explicit in that they apply only to wells drilled under the Acts.

• The information that you are requiring with respect to all wells, including well names, IDNR reference numbers and GPS coordinates is unnecessary and will not provide you with any useful information. The collection of all of this information and data will be extremely time consuming and costly.

• The information required for the exemption certificate has in most instances, already been acquired by most of the first purchasers based upon the requirements of theActs.

• Your proposed rules place investigative requirements on first purchasers that would be extremely difficult and costly. These obligations are not required by theActs.

• Your rule obligations are retroactive to July 1, 2013. Many of your obligations are not required by the Acts and thus create a contingent liability that is potentially extensive and based in substance on rules that have yet to even be promulgated.

• In summary, the IOGA's position is that your proposed rules go well above and beyond the requirements and authorization of the Acts. The requirements and obligations of the Acts were carefully crafted through extensive negotiations and compromise. Perhaps this is not your intent. If not, then the proposed rules need to be clarified.

Thank you for allowing the IOGA to comment.

Sam Barbee
Executive Vice President
Illinois Oil & Gas Association (IOGA)
824 East IL Highway 15
PO Box 788
Mount Vernon, Illinois 62864 Phone: 618-242-2857
Fax: 618-242-3418
Mobile: 573-690-4538
[email protected]