Severance Tax Services

Severance tax services are a complex function that requires a comprehensive understanding of oil and gas field operations and state-specific tax codes.

Severance taxes vary by state and are based on the amount of non-renewable natural resources produced, the value of those resources, or a combination of both. Most states levy severance taxes on all or part of the revenue from the sale or delivery of oil and gas production.

State Revenue from Severance Taxes

Most states distribute severance tax revenues in different ways, but they typically use them to fund conservation and environmental projects and to help balance their budgets. Commercial real estate property tax also reserve a portion of the collected taxes for permanent funds, whose earned interest can be used to help pay for other needs.

However, as oil prices and production have declined, Alaska has seen its severance tax revenue fall dramatically.

As a result, the state must have flexible budgeting arrangements or significant rainy day funds to accommodate unforeseen changes in severance tax revenue flows. Additionally, severance taxes must be backed up by other sources of state revenue, such as income tax or sales tax.

In some cases, severance tax revenue is subject to the spending and revenue limitations of TABOR (the Taxpayer Bill of Rights). Therefore, it is important to have an experienced severance tax expert who can navigate the tax code and state statutes in a timely manner.

Our severance tax team is fully versed in all aspects of the severance tax process. We work closely with clients to understand their business and to identify opportunities for severance tax audit reduction.

We will also assist in the development of severance tax refund claims and submit them to each state's taxing authority. Invoke will file these claims in the most efficient way possible and capture recoveries where possible.

Depending on the circumstances of the project, we may need to obtain access to the relevant state reporting software and/or data for the state we are reviewing. We will also conduct a review of your purchase data, well records and compliance documents to identify areas where we can apply for recoveries and/or audit reductions. Learn more about severance tax services in this website

Severance Tax Incentives and Exemptions

Several state governments have enacted incentive programs to encourage oil and gas producers to extract their resources and increase production. Some, like Oklahoma, impose incentives on the amount of oil or gas that is extracted from a well, while others give producers credits for certain types of wells.

These programs can reduce the cost of producing oil and gas, making it easier to bring a well out of production or keep an existing well in production. For marginal operators, these programs can be the difference between drilling a new well or not. Check out this related post to get more enlightened on the topic: https://www.encyclopedia.com/law/encyclopedias-almanacs-transcripts-and-maps/property-taxes.