Specialty Tax Spotlight – Severance Tax

Specialty Tax Spotlight

In this episode of Weaver: Beyond the Numbers, Specialty Tax Spotlight, Sean Muller, Mayur Naik and Tanner Owens explore the often-overlooked area of severance tax, which applies to extracting natural resources like oil, gas, coal and timber. They explain how this tax works, its filing requirements and the incentives to help producers reduce tax liabilities. Whether operating oil wells or drilling for natural gas, understanding severance tax can result in substantial savings.

Key Points:

• Severance tax is a tax imposed on natural resources, with variations in filing and payment responsibilities across states.
• Many states offer incentives that reduce the severance tax liability, including deductions for marketing costs and provisions for low-producing wells.
• Producers can benefit from conducting lookbacks to capture refunds, but it’s important to understand each state’s statute of limitations.

The discussion centers on severance tax, imposed when natural resources are severed from the ground. Muller, Naik and Owens explain how this tax works, including monthly or quarterly filings and how producers can use state-specific incentives to lower their tax obligations. These incentives, such as marketing-cost deductions in Texas and Oklahoma, can lead to significant tax savings, especially for low-producing wells. The conversation also touches on the importance of staying informed about potential refunds through lookbacks and understanding state statute limitations.

“There are valuable incentives for producers, from marketing-cost deductions to reduced rates for low-producing wells — knowing what’s available can save you money,” Owens said. Ensuring proper knowledge of the state’s regulations and understanding the statute of limitations of a specific state is vital when trying to redeem overpayments.

This episode is essential for those involved in energy production and other natural resource industries. By grasping severance tax nuances, possible incentives and the obligations for filing and paying, you can potentially reduce your financial burden.

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