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The Economic Recovery Tax Act of 1981 provides many new concepts affecting taxpayers in the oil and gas industry. Of primary importance is the reduction in the windfall profit tax on newly discovered oil. The law also modifies the royalty credit, replacing the dollar exemption with a more liberal barrel exemption. It also provides for an exemption of windfall profit tax on independent stripper oil.
The new law also provides for a new concept in recovering capital cost in fixed assets. Depreciation is replaced with the new "accelerated cost recovery system."
Many other changes were made in reduction in tax rates and the addition of saving incentives. The law is very complex and its provisions have various effective dates. Also, many of the changes are phased in over a period of time.
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