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 The United States of America (USA), also known as the United States (U.S.) or America, is a country primarily located in North America. It is a federal republic of 50 U.S. state, states and a federal capital district, Washington, D.C. The 48 ...

. Resources that typically incur severance taxes when extracted include oil,

natural gas Natural gas (also fossil gas, methane gas, and gas) is a naturally occurring compound of gaseous hydrocarbons, primarily methane (95%), small amounts of higher alkanes, and traces of carbon dioxide and nitrogen, hydrogen sulfide and helium ...

coal Coal is a combustible black or brownish-black sedimentary rock, formed as rock strata called coal seams. Coal is mostly carbon with variable amounts of other Chemical element, elements, chiefly hydrogen, sulfur, oxygen, and nitrogen. Coal i ...

uranium Uranium is a chemical element; it has chemical symbol, symbol U and atomic number 92. It is a silvery-grey metal in the actinide series of the periodic table. A uranium atom has 92 protons and 92 electrons, of which 6 are valence electrons. Ura ...

, and

timber Lumber is wood that has been processed into uniform and useful sizes (dimensional lumber), including beams and planks or boards. Lumber is mainly used for construction framing, as well as finishing (floors, wall panels, window frames). ...

. 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). Where the resources are publicly owned to begin with (for example, in most Commonwealth and

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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. States usually calculate the tax based on the value and/or volume produced; sometimes the method differs for oil, natural gas, and condensates. 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). As of 2021, 34 states collect a severance tax on oil and gas extraction. As of September 2022, the Colorado severance tax was 1% of the gross income from oil and gas owed.

Incentives

Severance tax incentives may be given in the form of credits or lower tax rates in order to encourage the production and expansion of oil and gas operations.

Endowments

Several U.S. states, including

New Mexico New Mexico is a state in the Southwestern United States, Southwestern region of the United States. It is one of the Mountain States of the southern Rocky Mountains, sharing the Four Corners region with Utah, Colorado, and Arizona. It also ...

Wyoming Wyoming ( ) is a landlocked U.S. state, state in the Mountain states, Mountain West subregion of the Western United States, Western United States. It borders Montana to the north and northwest, South Dakota and Nebraska to the east, Idaho t ...

Colorado Colorado is a U.S. state, state in the Western United States. It is one of the Mountain states, sharing the Four Corners region with Arizona, New Mexico, and Utah. It is also bordered by Wyoming to the north, Nebraska to the northeast, Kansas ...

Alaska Alaska ( ) is a non-contiguous U.S. state on the northwest extremity of North America. Part of the Western United States region, it is one of the two non-contiguous U.S. states, alongside Hawaii. Alaska is also considered to be the north ...

and

Montana Montana ( ) is a landlocked U.S. state, state in the Mountain states, Mountain West subregion of the Western United States. It is bordered by Idaho to the west, North Dakota to the east, South Dakota to the southeast, Wyoming to the south, an ...

, 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, and is generally used to support public education and other public programs.

References

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)
* Taxes by type Resource extraction Economics of primary sector industries Supply-side economics {{tax-stub

Oil and natural gas

Incentives

Endowments

See also

References

Further reading

External links