Does the owner of mineral rights pay property taxes?
Jan,
That will depend on the state where they are located. And in some states it will depend on if they are producing or not.
Mostly Texas and New Mexico. Some are producing and some are not. What a about if they are leased, but no drilling has taken place?
Someone with more experience in those states will have to pop in. In Oklahoma they are not subject to property taxes regardless of the status. Oklahoma uses the severance tax approach on the product produced and part of that goes back to the counties involved.
In Texas, from my experience, is that the County Appraisal District will establish a value of a producing royalty interest, for well production in that County, and subject the royalty owner to an ad valorem property tax. They should send you a notice of appraisal value document typically in the Spring. Mineral properties are not taxed unless they are producing.
Dear Mike,
I heard some whispers that non producing mineral assets might be brought up in the legislature through Greg Abbot's office. What a nightmare that would be.
Buddy CottenNot only a nightmare for us mineral owners, but for the state as well. They would have to do their research on owners and as we all know, that can be a complicated and time consuming issue.
Buddy: Perish the thought. There would be absolutely no justification for placing a value on mineral rights that have little or no value. As a rancher this potentially could have a negative affect on the AG economy. Should this
become an issue in the Legislature I am sure the mineral/royalty owner Associations and the AG related organizations will weigh in on any such proposals. If you hear anything further please let us know.
Will do.
Yes, in Texas only producing minerals are taxed, with the ad valorem tax rates established for that property's surface being the same rates applied to the royalties. And although some landmen have told me in Texas it depends on each County whether or not a royalty stream of income is taxed, I have worked in about 40 different Texas counties and have not yet seen a County that does NOT do so.
One other thing I would add, the ad valorem tax rate is applied on January 1 of each year. That means that if your well is not producing on January 1 but starts flowing on January 2, you just got one year of royalty income free of property taxes. On the other hand, if your well IS producing in January 1 but is shut-in, abandoned, or capped on January 2, then you just got hit for a year of property taxes on a royalty stream of income that is likely to be paltry to non-existent.
Taxing non-producing mineral assets would be an absolute nightmare in Texas. From my experience here, it would be a net revenue loss for tax payers, as it would cost large counties like Tarrant (Fort Worth) more money to determine the ownership, than the taxes it would potentially generate on non-producing minerals.
Kansas is a county-by-county state when it comes to taxation of minerals and royalties. Some counties tax non-producing minerals IF they are severed from the land, and other counties do not. I'm not certain, but I wouldn't be surprised that a few counties there do not even tax producing minerals or royalties on production.
Buddy, I will be keeping an eye on this issue, thank you for mentioning it.
In TX, you only pay when it produces,
In Ok, if you live out of state, they take 28% off the top.
In Ks, you pay taxes on your minerals or you will lose them.
I'm sure the government will find a way to tax the minerals or we will lose them to the government. The USA is one of a few country that let the people still own the minerals.
Virginia,
28% ???
Out of state mineral owns are subject to 5% state income tax.
All owners are subject to 7% severance tax. (Although there are provisions for it to be less when prices are very low). However there are some incentives with non-conventional drilling. Usually Horizontals qualify for 6/7 exemption until the well pays out or 4 years (the one occurring 1st)
I've assisted a few out of state owners with Oklahoma production and their stubs reflected 5%.
I have seen 28% held before. But it was federal backup withholding because no W-9 was submitted by the mineral owner.
Virginia Pflum said:
In Ok, if you live out of state, they take 28% off the top.
Virginia, it is not safe to make a blanket statement about Kansas taxes like that. I spoke with over 30 counties in the past two months there and got different responses from each one about whether or not they assess taxes on minerals and royalties. There was no consistency. The one thing that is consistent, is that whether or not you are assessed taxes, does NOT reduce your responsibility to report (or send a rendition) of your minerals to the county each year. Kansas does have dormant mineral statutes. Paying taxes is only one method to prevent an owner from losing them, luckily (for those who are not assessed taxes, other methods are available).
Virginia Pflum said:
In Ks, you pay taxes on your minerals or you will lose them.
Kitchen,
You are right, I think it may go by counties and I am sorry that I made a general statement. I just know you are required to do something in KS or you can/will lose your minerals. My CPA takes care of all that stuff for me.
I also stated that OK withholds 28% for state income tax on non residents. I was wrong on that. I went back a few years ago and they did take out 28% on a well, but when I checked the other companies stubs, they didn't take that much out. So, I'm not sure why they did that, they have all the needed papers.
Rick,
I went back and checked my records and one company did take 28% out for OK state income tax. They did have a W-9 on file. But, when I checked my other companies stubs, they didn't take that much out.
My CPA takes care of that for me, I just knew they take a lot out of my checks. Sorry so the wrong information.
In many states property taxes apply. In Oklahoma there is no ad valorem tax on minerals. You do pay severance taxes and income taxes. In Arkansas you get to pay ad valorem tax, income tax, severance taxes all. In Colorado you pay income, severance, conservation, and ad valorem, generally taken out of your check by the operator. It does vary state by state.
Many out of state people ignored paying state taxes under the assumption that the operator paid those. That can be a serious tax problem. Arkansas will go back on you 5 years if uncovered.
Does anyone know anything about W. Va. taxes on royalties? We have been paying taxes on nonoperating leases that are in the process of becoming operating.