Severance taxes are taxes imposed on the removal of natural resources within a taxing jurisdiction. Severance taxes are most commonly imposed in oil producing states within the United States. Resources that typically incur severance taxes when extracted include oil, natural gas, coal, uranium, and timber. Some jurisdictions use other terms like gross production tax.
Note that severance taxes are used in jurisdictions where most resource extraction occurs on privately owned land and/or where sub-surface minerals are privately owned (for example, the United States).[1][2] Where the resources are publicly owned to begin with (for example, in most Commonwealth and European Union countries), it is not a tax but rather a resource royalty that is paid. In the case of the forestry industry, this royalty is called "stumpage".
Oil and Natural Gas
Severance taxes are set and collected at the state level.[3] States usually calculate the tax based on the value and/or volume produced; sometimes the method differs for oil, natural gas, and condensates.[4][5] Production from certain wells may be exempt from severance tax based on the amount of production (i.e. "stripper" wells) or the type of well (i.e. horizontal, tertiary, deep, etc).[5]
Incentives
Severance tax incentives in the form of credits or lower tax rates in order to encourage the production and expansion of oil and gas operations.
Severance tax endowments
Several U.S. states, including New Mexico, Wyoming, Colorado, Alaska and Montana, have created severance endowments. These range in size from about $800 million in Montana to more than $37 billion in Alaska. In theory, income from these permanent endowments remains available in perpetuity after resources are no longer being extracted.
See also
- Natural resources consumption tax
- Severance tax legislative history in California
- Stumpage
References
- ^ Brad Bumsted and Andrew Conte, "'Historic' severance tax goes before Pennsylvania House", The Pittsburgh Tribune-Review, Sep. 29, 2010; retrieved December 5, 2013
- ^ Severance tax, retirement fund debated on Dialogue, The Deseret News - Feb 26, 1983, Retrieved December 5, 2013
- ^ "State Oil and Gas Severance Taxes". National Conference of State Legislatures.
- ^ http://www.mineralweb.com/owners-guide/leased-and-producing/royalty-taxes/oil-severance-tax/
- ^ a b "Mineral Revenues in Louisiana" (PDF). LSU Center for Energy Studies. March 2020.
External links
- Texas Severance Tax Incentives: Past and Present (Railroad Commission of Texas)
- Coal and Renewables in Central Appalachia: The Impact of Coal on the West Virginia State Budget (2010)
- Coal and Renewables in Central Appalachia: The Impact of Coal on the Tennessee State Budget (2010)
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