Gas Severance Tax

Gas Severance Tax Overview

Most gas producing states levy a severance tax on its gas production, and those who don’t currently are thinking hard about it. Gas severance taxes are based on either the volume or value of the gas production. Royalty owners pay their pro rata share of these gas severance taxes. You’ll notice this tax burden as a deduction on your monthly royalty revenue statements.

No Standard Gas Severance Tax

The vast majority of law affecting oil and gas production emanates from the state level. In keeping with this, gas severance taxes also are designed by individual states.There are as many rate methodologies as there are states that produce natural gas. States generally base their calculations on the value of the gas produced, the volume of gas produced, or some combination thereof.

Various credits or lower tax rates are often allowed in situations where the tax rate might be burdensome enough such that wells might be plugged and abandoned. Examples might be: periods of low gas prices, low production rate stripper wells, or with fields deemed as tight gas.

Royalty Owners Pay Their Share of the Gas Severance Tax

Just as the Operator and other Working Interest parties must pay their pro rata share of gas severance taxes, so must the royalty owners. Royalty owners will notice this deduction shown on their monthly royalty revenue statement. For further reading on this, see the article Oil and Gas Royalty Statement.

State Gas Severance Taxes

Click on the links below to locate gas severance taxes by state. Iowa, New York, and Pennsylvania do not currently have a gas severance tax.

The Severance Tax Balancing Act

Each state attempts to balance its need for revenue to run state government with the diminishing effect on the gas producing industry by placing yet another tax upon its operations within that state. This of course makes for regular political debate. Most states argue this on a regular basis, attempting to find the right balance for them.

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