Severance taxes are taxes imposed on the removal of

natural resources Natural resources are resources that are drawn from nature and used with few modifications. This includes the sources of valued characteristics such as commercial and industrial use, aesthetic value, scientific interest and cultural value. ...

within a taxing jurisdiction. Severance taxes are most commonly imposed in oil producing states within the

United States The United States of America (U.S.A. or USA), commonly known as the United States (U.S. or US) or America, is a country primarily located in North America. It consists of 50 U.S. state, states, a Washington, D.C., federal district, five ma ...

. Resources that typically incur severance taxes when extracted include

oil An oil is any nonpolar chemical substance that is composed primarily of hydrocarbons and is hydrophobic (does not mix with water) & lipophilic (mixes with other oils). Oils are usually flammable and surface active. Most oils are unsaturate ...

natural gas Natural gas (also called fossil gas or simply gas) is a naturally occurring mixture of gaseous hydrocarbons consisting primarily of methane in addition to various smaller amounts of other higher alkanes. Low levels of trace gases like carbon ...

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

uranium Uranium is a chemical element with the 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. Uranium is weakly ...

, and

timber Lumber is wood that has been processed into dimensional lumber, including Beam (structure), beams and plank (wood), planks or boards, a stage in the process of wood production. Lumber is mainly used for construction framing, as well as fini ...

. 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 A commonwealth is a traditional English term for a political community founded for the common good. Historically, it has been synonymous with " republic". The noun "commonwealth", meaning "public welfare, general good or advantage", dates from th ...

and

European Union The European Union (EU) is a supranational political and economic union of member states that are located primarily in Europe. The union has a total area of and an estimated total population of about 447million. The EU has often been ...

countries), it is not a tax but rather a

resource royalty A royalty payment is a payment made by one party to another that owns a particular asset, for the right to ongoing use of that asset. Royalties are typically agreed upon as a percentage of gross or net revenues derived from the use of an asset o ...

that is paid. In the case of the forestry industry, this royalty is called "

stumpage Stumpage is the price a private firm pays for the right to harvest timber from a given land base. It is paid to the current owner of the land. Historically, the price was determined on a basis of the number of trees harvested, or "per stump". Curr ...

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. It is one of the lowest severance taxes in the US Colorado allows oil and gas producers to deduct their property taxes from their severance tax, so many oil and gas producers pay no severance tax whatsoever.

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.

Endowments

Several U.S. states, including

New Mexico ) , population_demonym = New Mexican ( es, Neomexicano, Neomejicano, Nuevo Mexicano) , seat = Santa Fe, New Mexico, Santa Fe , LargestCity = Albuquerque, New Mexico, Albuquerque , LargestMetro = Albuquerque metropolitan area, Tiguex , Offi ...

Wyoming Wyoming () is a state in the Mountain West subregion of the Western United States. It is bordered by Montana to the north and northwest, South Dakota and Nebraska to the east, Idaho to the west, Utah to the southwest, and Colorado to the sou ...

Colorado Colorado (, other variants) is a state in the Mountain states, Mountain West subregion of the Western United States. It encompasses most of the Southern Rocky Mountains, as well as the northeastern portion of the Colorado Plateau and the wes ...

Alaska Alaska ( ; russian: Аляска, Alyaska; ale, Alax̂sxax̂; ; ems, Alas'kaaq; Yup'ik: ''Alaskaq''; tli, Anáaski) is a state located in the Western United States on the northwest extremity of North America. A semi-exclave of the U.S ...

and

Montana Montana () is a U.S. state, state in the Mountain states, Mountain West List of regions of the United States#Census Bureau-designated regions and divisions, division of the Western United States. It is bordered by Idaho to the west, North ...

, 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.

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

External links