Severance tax is a tax imposed by a state on the value of nonrenewable natural resources that are extracted from the earth. This includes resources such as oil, coal, and natural gas. The tax is typically calculated based on the market value of the resources at the time they are severed, and it is often viewed as a privilege or license tax for the right to extract these resources.
Severance tax is primarily used in the context of natural resource extraction. It falls under state tax law and is relevant to industries involved in mining and drilling. Legal practitioners may encounter severance tax issues when advising clients in the energy sector or when dealing with property rights related to mineral extraction. Individuals and businesses can manage severance tax obligations using legal forms and templates provided by services like US Legal Forms.
Here are a couple of examples of abatement:
For instance, in Arkansas, the severance tax on oil is either four percent or five percent of its market value, depending on the production volume. A company extracting oil must report this tax monthly and pay it based on the market value of the oil they severed during that period.
One notable case regarding severance tax is P & O Falco, Inc. v. Riley, 271 Ark. 562 (Ark. 1980), where the Arkansas Supreme Court clarified the nature of severance tax in the state. The case established that the tax is levied as a privilege tax on the extraction of natural resources.
| State | Severance Tax Rate |
|---|---|
| Arkansas | 4% to 5% on oil, varies by production volume |
| Texas | Variable rates based on resource type |
| Pennsylvania | Impact fee based on natural gas extraction |
This is not a complete list. State laws vary, and users should consult local rules for specific guidance.
If you are involved in the extraction of natural resources, it is crucial to understand your severance tax obligations. You should keep accurate records of your extraction activities and consult with a tax professional or legal advisor to ensure compliance. For those who prefer to manage this process independently, US Legal Forms offers templates that can help you navigate severance tax filings.
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