Are there any special rules or regulations regarding severance tax in my state?

Sixteen states and the District of Columbia do not charge severance taxes. California does not have a severance tax, but it does charge an evaluation fee on oil and gas produced in California, and the Census records this as severance income. Alaska generally depends on severance income more than any other state. As a primary focus, states have imposed taxes and fees on the extraction, production and sale of natural gas and oil.

These “compensation taxes” that apply to materials separated from the ground tax the extraction or production of oil, gas and other natural resources. In North Dakota, a tax is imposed on gross oil and gas production instead of property taxes on oil and gas-producing properties. The oil extraction tax also applies to the extraction of oil from the land. States distribute revenues in a variety of ways, but generally, most of the taxes collected are deposited in the general fund.

The taxpayer can choose the tax incentive that has the lowest tax rate for a gas well for each individual reporting period, but cannot declare both for the same gas well for the same gas well for the same reporting period. Depending on your production, different reports must be filed monthly with the Office of the State Tax Commissioner. Gross Gas Production Tax The gas tax is a fixed rate adjusted annually for every thousand cubic feet (mcf) of all non-exempt gas produced in North Dakota. States also use the revenues to finance conservation or environmental clean-up projects and to distribute portions of the collected taxes to local governments.

While legislators hope to encourage new drilling, a study commissioned by the Wyoming State Legislature in 2000 suggests that increased production would not compensate for the loss of revenue resulting from lower taxes. Governor Tom Wolf's proposal would maintain the current impact rate and raise the state's effective tax rate to 4 percent, on a par with other natural gas-producing states. For example, Arkansas applies a value tax to gas and oil through its severance tax, in addition to a relatively modest fee per volume of oil and gas produced as an evaluation of oil and gas. States often design volume taxes to be easily adjusted, thus adapting to changes in the market value of gas and oil.

Thirty-four states have enacted taxes or fees on the extraction, production and sale of oil and natural gas. Value taxes can be difficult to implement because states must closely monitor oil and gas sales to determine the current market value. In addition, since prices are prone to fluctuation, value taxes can make it difficult to predict government revenues. These approaches aim to increase state revenue from severance taxes when oil and gas industries thrive and reduce state pressure when the industry is lagging behind.

Several states tax the volume of oil or gas produced, most often per barrel of oil or per 1,000 cubic feet of natural gas.

Glenna Penrod
Glenna Penrod

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