Severance Tax Services for Oil and Gas Companies
Severance tax services are designed to help oil and gas companies manage their severance taxes in the most effective way possible. This involves helping clients navigate the complexities of state-specific production and royalty tax codes. It requires extensive knowledge of the industry and the unique tax environment, as well as the implementation of proactive cost and production monitoring.
The Volatility of Severance Tax Revenue
Severance and production taxes are a volatile source of state revenue because they fluctuate with the price and production of oil, natural gas, and other resources. This volatility can make it difficult for states to plan their budgets and provide adequate funding for essential services. In fact, Alaska’s severance tax made up nearly 40 percent of its total tax collections in 2012, but that amount has fallen sharply since then. This resource will help you know more about Severance Tax Revenue.
Fortunately, many states have implemented methods to lessen the impact of these taxes on their budgets. For example, Wyoming has proposed a bill that would cut the state’s severance tax from 6 percent to 3 percent for wells in their third and fourth years of production. This legislation is intended to balance the need for severance tax revenue with private investment from the oil and gas industry. However, a 2000 study conducted by the state legislature suggests that the reduction in tax revenue does not offset the loss of production from the new wells.
This volatility also makes it difficult for severance tax revenues to grow. For instance, in 2008 Oklahoma’s gross production tax accounted for one-tenth of state and local tax revenue, but that amount fell to only $331 million in 2016.
The Severance Tax Permanent Fund
The New Mexico Severance Tax Permanent Fund was created by the New Mexico Legislature in 1973. It is a state-run trust fund whose revenue originates from severance taxes deposited by oil, gas and other natural resource companies in the state. The money in the fund is then invested in a variety of mutual funds and bonds, with the goal of generating investment returns to offset the tax burden.
A significant portion of this money is then distributed to local governments. Seventy percent is earmarked for discretionary loans and grants to socially or economically impacted communities.
The commercial real estate property tax team understands the nuances of state tax administration and the value that can be captured by providing proactive, comprehensive, and efficient services to Clients in this highly complex environment. This includes identifying opportunities for audit reductions and preparing refund claims to capture recoveries in the most effective way possible.
Reviewing and analyzing severance tax reporting by operators
Oil and gas producers are required to report the volume of minerals extracted from their wells in order to determine the appropriate tax rate. These rates vary from state to state, and exemptions exist in each state to reduce the tax burden for oil and gas operators.
Our severance tax process begins by reviewing your purchase data, well records and compliance records in order to identify areas where recoveries may be possible. This analysis is followed by identifying opportunities for audit reductions in order to maximize the efficiency of your audit process and taxing authority. You can get more enlightened on this topic by reading here: