I know that a royalty owner has to pay his fair share of the Severance Tax owed to the state, but what if you find out that the Natural Gas Tax Report turned into the State has a Net Tax Value of ZERO, but the oil company deducted your share of the taxes they say was owed to the State. If the Tax due was Zero, how can they collect money from the royalty owner? Is this legal?
I am baffled, Bob. The standard definition of severance tax is tax paid when the minerals are severed from the earth (by production) and paid on a monthly basis. It is hard for me to think of a situation where the cost of a well exceeds its revenue for a royalty owner.
I got paid some royalties on the gas, but was charged my share of severance tax on an amount the oil company said was due to the state. What started this was I decided to check the amounts on the check that oil company stated was the Tax and my portion of the severance tax. I know what the state charges for severance tax (7.5% and .000667 (reg fee)). Using the market value on my check and these figures it was less than what oil company stated on check. so I have now been waiting for all most a month to get an answer back from them. But in the mean time I have requested copies of Natural Gas Production reports from the State Comptroller's Office which I received yesterday and it shows them not owing any severance tax for this particular well. They listed market value (which does not match what they are paying us) they then listed the same amount as marketing cost leaving a Net Tax Value as Zero. Hence my question. If oil company had to pay ZERO taxes to state, why are they collect severance taxes from royalty owner?
This interests me greatly. The production from my well is located in a designated "High Cost Tight Sands" area, and I believe has special tax exemptions. I am waiting to receive my check but I would guess they probably deducted the full taxes regardless of any tax exemptions.
Kitchen,
From what I have learned in the past few years is that the oil company usually does not apply for the exemption until about a year later, so they do collect the full taxes during that time. If they get an exemption then the oil company gets a refund or credit for the taxes that they paid in the previous year.
Thank you for the clarification. I will post back my findings as soon as possible.
I am very interested in this situation also. I have a well that has been producing several years and has the "High Cost" exemption. Mr Eardly, who or what area of the State Comptrollers office to you request a report from? Their website pertains only to producers/buyers.
JMH,
I am attaching some PDF files I made for you this morning. I hope they help you learn how to search the Texas State Comptroller's records. You can also email the Open Records Division ([email protected]) to request information on a well. You will need the Lease #, County, Well Name, Dates for information you are looking for and if you want a reply by email, state that in your email request, otherwise they will mail it to you. I'm also attaching the State's Record Layout and Field Description I got from the State that helps to understand some of their report fields. Hope this helps.
2536-HelpforStateComptrollersWebsite73113.pdf (767 KB) 2537-LayoutCrudeOilDetailedData.pdf (119 KB) 2538-LayoutNaturalgasDetailedData.pdf (87.2 KB)Thank you very much for the info. I had used their website a little to find filed exemptions. These data code sheet will help a lot. I'll let you if/when i can info from producer or Comptroller.
I was able to pull up all of the info for my well based on your directions. Your info is greatly appreciated! I need to take some time and try to comprehend all of the codes and activity on there now.
JMH and Kitchen,
Your both Welcome, glad I was able to help.
Thanks for the directions as well - proved helpful for me in an unrelated matter.
LopsideL,
Your welcome, I'm glad the information helped you.
This is slightly off-topic, but which agency is responsible for determining / collecting the Federal severance taxes due? Is there any way to check those numbers as we are able to check the Texas numbers?
I don't know of any Federal Severance Taxes. I believe that each state has set whether or not they are accessed. I do know that you get to deduct the taxes paid on your royalties on your Federal Income Tax Return along with Ad Valorem taxes. If I'm wrong, please let me know.
From what I have heard the operator can deduct taxes from the mineral owners share and receive a tax rebate from the state, the operator does not return the tax money to the mineral owner. You might be able to sue the operator. Consult an oil and gas lawyer, bring your lease. Operators are allowed to profit in many ways unless they are specifically forbidden in the lease. Keeping the minerals owners share of a tax rebate may or may not be one. I would also be concerned that a lawsuit, even if successful would be too expensive to be worthwhile. This is just one thing I can think of that would fit the facts you have related, it could be something different entirely.
I know for a fact that it is illegal for a company to collect sales tax on an item that is not due to the state and the company pockets the money. I am wondering if this same rule applies to severance tax. If an oil company does not owe any severance tax to the state for any given month, can they legally collect the royalty owners share and keep the money, i.e. line their own pockets with that tax money? This is my question. I understand the difference between exempt well refunds, which I am now covering in my leases. I'm also getting tire of hearing, "you may have to file a lawsuit but you probably shouldn't because it can be costly", so we all just sit by and let the oil companies get away with not following what both parties agreed to in a contract. So we have come up with the term, "Legal Thieves" and we have come to realize that most mineral owners are not brave enough to hold the oil companies accountable for their acts. So they take advantage of the mineral owner. People forget that THEY OWN the minerals and you are giving the oil company 75% or 80% of that oil and gas to get it out of the ground. But of course oil companies what to take more, by hook or crook. Moral: Mineral Owners should stick together and file more class action lawsuits, like these people did: http://mitchusson-exco.com/.
Wow I guess I was way off. For some reason I always thought the Feds got a cut on production too (besides income). R W I have been researching the tax exemptions at the state level and determining how it has been applied (or not) to royalty checks. I am working to develop some kind of excel spreadsheet to break down all the numbers between the Texas Comptroller / RRC / and our royalty checks for auditing and accounting purposes.
I am working on a spreadsheet myself.
I have my own lawsuit Mr. Eardley, I assure you I have not forgotten who owns the mineral rights. I will remind you of one thing though, when you lease, you convey 100% of your leased minerals to the lessee, the lessee literally owns your minerals, to do with what he will, until the lease expires according to it's terms. You own nothing of the leased mineral rights except the promised royalty and any other benefit explicitly spelled out in the lease.
If you are right and you win in court, unless there are punitive damages, you will receive only that which you were due under the lease and the lease will stand. The law abhors a lease forfeiture. The amount you can possibly recover is limited by the language of your lease, unless you can find a reason why your lease should be rescinded instead of just paying you money damages. That is why you hear repeatedly that it may be too costly to sue the lessee/operator, because rescission of the lease is extremely unlikely. If you win after 3 years, the lessee/operator still holds your lease (you may have eaten into profits slightly), pays you the money damages......and the very next day resumes doing what you just sued him for. What do you do now?
I agree with you that something should be done, that something could be done. I also believe that nothing will be done, because there are too few mineral owners, too spread out and most have no idea if they are being stolen from even when it's spelled out in the lease. For others it's pie in the sky free money and if it's 2 cents more than they had, they don't care that it should have been $2,000, because they aren't even going to look into the situation. I wish you the best of luck.
Robert Eardley said:
I know for a fact that it is illegal for a company to collect sales tax on an item that is not due to the state and the company pockets the money. I am wondering if this same rule applies to severance tax. If an oil company does not owe any severance tax to the state for any given month, can they legally collect the royalty owners share and keep the money, i.e. line their own pockets with that tax money? This is my question. I understand the difference between exempt well refunds, which I am now covering in my leases. I'm also getting tire of hearing, "you may have to file a lawsuit but you probably shouldn't because it can be costly", so we all just sit by and let the oil companies get away with not following what both parties agreed to in a contract. So we have come up with the term, "Legal Thieves" and we have come to realize that most mineral owners are not brave enough to hold the oil companies accountable for their acts. So they take advantage of the mineral owner. People forget that THEY OWN the minerals and you are giving the oil company 75% or 80% of that oil and gas to get it out of the ground. But of course oil companies what to take more, by hook or crook. Moral: Mineral Owners should stick together and file more class action lawsuits, like these people did: http://mitchusson-exco.com/.