Source: http://permicoroyalties.com/blog/understanding-royalty-taxes-part-4-gas-severance/
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Understanding Royalty Taxes – Part 4 Gas Severance! | Permico Royalties - We Buy oil royalties, gas royalties and mineral rights.
Understanding Royalty Taxes – Part 4 Gas Severance!
If you are the owner of mineral interests, you are responsible for certain taxes if you sell those interests or gain income by selling gas and oil royalties.
As with the sale of oil royalties, gas royalties are subject to a severance tax that is levied on natural gas extracted from the ground and sold for consumer use.
Oil and gas industry severance taxes due from the sale of gas and oil royalties are collected by the state for state usage.
What is The Gas Severance Tax?
The gas severance tax is levied by all gas-producing states on the natural gas produced within that state to be used by consumers.
The tax applies to all natural resources extracted from the land, such as natural gas, oil, coal, uranium, and timber.
This severance tax is paid by all those who own a Working Interest in gas production, including anyone earning income by selling gas royalties.
How is the Gas Severance Tax Paid?
Like the oil severance tax discussed in Part 1 of this series, the gas severance tax due from the sale of gas and oil royalties is state-controlled and collected, so the rate may differ from state to state.
Taxation is based on the volume of product produced as well as its market value.
In Texas, the current gas severance tax rate is 7.5% of natural gas produced and saved; the current oil severance tax rate is 4.5% of oil produced.
Those selling gas and oil royalties will see severance taxes calculated on their monthly production report and deducted from the total royalties earned that month.
What are Severance Tax Incentives?
Although the funds collected through severance taxes that apply to oil and gas royalties are used by states to fund improvement projects, maintain infrastructure, and general government expenses, many find the taxes costly and prohibitive.
This can be especially concerning for oil and gas industry ventures dealing with low-producing wells, high operating costs, etc.
To combat these concerns and prevent the capping of wells or discouraging smaller enterprises from exploring and producing oil and gas, the government offers a number of incentives that can reduce the amount of severance tax due to help owners of gas-producing wells and sellers of gas and oil royalties retain more of their income.
Of course, these incentives tend to be hotly debated and in primary oil and gas-producing states like Texas, severance incentives and tax credits have become important political topics.
Get Help From an Experienced Royalties Specialist
Between the various incentives available to those selling gas and oil royalties and other available credits, it’s important to do your research on severance taxes and see how they affect your gas royalties income.
Learn about the gas severance tax, incentives, and other oil and gas taxation topics by working with an experienced royalties specialist who can help with your sale of gas and oil royalties.
Income tax time comes around every April 15th, so get some helpful information about Income Tax as it applies to royalty taxes in Understanding Royalty Taxes – Part 5 Income of our informative series on royalty taxes plus if you missed Part 1 Oil Severance, Part 2 Depletion Allowance or Part 3 1031 Exchange, click on them here to learn more!
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