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Ext. PublicationSpecialty Tax Spotlight — Ad Valorem and Severance Tax Planning Part 2
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Specialty Tax Spotlight
Optimizing ad valorem and severance tax strategies is critical for companies in the natural resources sector. In this episode of Specialty Tax Spotlight, Mayur Naik, Tanner Owens and Stephen Arredondo share insights into proactive planning, identifying incentives and leveraging efficiencies to reduce tax burdens effectively.
Key Points:
- Conduct comprehensive reviews to identify severance tax incentives and deductions.
- Leverage lease operating statements (LOS) to refine property tax valuations.
- Engage in proactive planning to minimize errors and streamline tax processes.
Tanner emphasizes the importance of reviewing expenses and incentives related to severance tax. For example, companies can claim deductions for costs incurred in moving natural gas to market or maintaining low-producing wells. Additionally, many states offer tax incentives for specific activities, such as high-cost gas extraction and stripper wells. By performing a thorough review, companies can ensure they are capturing all available benefits.
The team highlights how lease operating statements (LOS) and division of interests (DOI) play a crucial role in ad valorem tax valuation. These documents help ensure accurate valuations by reflecting economic realities, such as production declines and pricing trends. Errors in royalty and working interest allocations can significantly impact tax assessments, making detailed reviews essential. “These expenses are what predicate your value … this is what we look at to start formulating what should you be valued at,” said Stephen.
Both proactive and reactive approaches are valuable in tax planning. Proactive efforts, such as timely submission of updated ownership data, streamline the tax process and prevent errors. Reactive strategies, like pursuing refunds for missed incentives, help recover costs when prior opportunities were overlooked. At the end of the episode, Mayur emphasizes the importance of balancing these approaches to optimize results.
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Ad Valorem and Severance Tax Planning Series
Tune in for a comprehensive three-part series on ad valorem and severance tax, where Weaver’s tax professionals uncover hidden opportunities to optimize tax practices, reduce burdens and maximize savings. Don’t miss out on valuable insights that could transform your company’s tax approach!
