Severance tax is a state tax imposed on oil and gas at the time it is produced (severed) from the ground, typically calculated as a percentage of the value or volume produced.
Severance tax is usually withheld by the operator and shown as a line item on your royalty statement. Rates and rules vary by state — Texas, for example, taxes oil and natural gas at different percentage rates, while other states use their own schedules and sometimes offer reductions for marginal or high-cost wells.
Because it is taken off the top of production value, severance tax is part of why your net royalty is lower than a simple price-times-volume estimate. It is separate from ad valorem (property) tax on minerals.
Taxes on mineral rights you own
Reading your royalty statement
Educational information only — not legal, tax, or investment advice. Consult a qualified attorney, CPA, or landman about your specific situation.
Effectively yes — it is generally withheld from royalty payments in proportion to your interest and remitted by the operator to the state. You see it as a deduction on your check detail.
It varies by state and by product (oil vs. gas), and some states reduce or exempt it for marginal or high-cost wells. Check your state's current rates and your statement detail.
No. Severance tax is a production tax withheld at the source. You may also owe federal and state income tax on your royalty income separately.
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