Our owned/leased o/g Marcellus/Utica acres with INR in Noble/Guernsey Counties in Ohio in two approved units are beginning production. We live in Maine and are thinking ahead to tax seasons. Maine having no o/g sites has little, if any, CPA expertise with o/g royalties. We feel the need for the tax season help. Is it acceptable to hire a well respected firm located in Maine who can research the variabilities of o/g royalty taxation {depletion, NIIT, inheritance, cash flow/qtrly payments/OH law}. Has anyone here had similar multi-state and Federal tax advisory services?
CPA here. A well-respected CPA in your area should be able to handle this. I file tax returns in states all over the country. It takes some research, but is very doable.
Hi Marco, I would be interested too, we are in Maine with mineral royalties in Texas.
DorianG10, We have consulted with a local (Yarmouth) firm and two National Portland Based firms, Baker Newman Noyes (BNN) and Berry Dunn (BD). The local firm is fee-based and expensive, while both BNN and BD are hourly based. BNN wasn’t interested in taking us on, but BD is. I’m not sure of the royalties you are, or may receive, but there are important tax considerations and tax withholding/prepay/quarterly submissions to consider. Berry Dunn has many national offices they can consult with for unique state tax issues (OH or TX). We discussed with them about Maine which is obviously not an oil/gas minerals impacted state, and they assured us they could use their multi state offices for support. We also need estate and trust support which they are good at. They favor hourly based because as time goes on, your tax picture will “normalize” to a certain extent and those hours will decrease. They were quite aware of issues such as depletion and NIIT, as examples, as well as Maine’s tax credit for taxes paid in other states. A fee-based system is an up front (big) retainer fee, then monthly fees. So we view the hourly rate system as an “as-needed” cost.
Where are your expected royalties from in Texas? Hope this helps! Do compare proposals!
Hi Marco. Thanks for this great information and apologies for my delay in responding. I’m just getting used to posting on this site.
I’ve recently moved back to the States from England where I needed excellent specialised accounting for the dual taxation. I’m hoping to move away from that next year and BD sound interesting. My sister and I are now based in Cumberland Center so it might be good to get a mini NARO Maine group going, would you be interested?
We’re a “thank you grandpa” family. Grandpa, uncle, mum and dad all geologists. I thought that I’d escaped but have now been caught by the bug and really enjoyed the NARO Texas conference last year. Our mineral interests are in Scurry and Upton counties.
I visited the NARO site where I found that there are a number of chapters around the country. There is one for Texas (is this where your mineral interests are?) as well as NARO East covering the Appalachian basin, including Ohio where our mineral interests are. So, I believe, if you are interested, you join the chapter where your interests lie. No NARO in ME because no significant, if any, O/G here.
I have yet decide on joining NARO East. The fee is one-time $75 Introductory, or $150 Annually. I guess we’ll have to decide if the fee justifies the content! I may ask this on the Mineral Rights Forum before going ahead, If their educational materials help to understand the tax implications, it might be worth it for at least the introductory fee, then wait and see about the bennies!
Hi, It is $75 the first year and you can add additional chapters for $25 each. Texas and Oklahoma are both really good chapters. I am just in Texas and will go to the national convention this year. The educational trainings and webinars are very useful. Good luck!
As Mineral Owners in Maine, the more we dig into this, the more I get concerned that a national CPA firm (like Berry Dunn ) with staff in Maine, NOT a shale producer, will have expertise in tax matters unique to O/G. For example, we are a small percent of a unitization in the Pleasant Point/Utica play in Ohio near Cambridge. We may wish to make a choice in calculating real cost depletion vs the 15% credit. From reading here on the forum, it sounds pretty complicated to go the depletion cost credit route, but we understand that we could have very significant royalties amounting to 75-80% within 3 years or so…in other words, depletion cost tax credits greater than 15%. (We only own minerals, no surface). My question do owners contract with an Ohio Marcellus Shale based CPA just to do the minerals part of the taxes, provided back here locally to our Maine CPA? Is it worth the effort to claim cost depletion? Is it worth trying to get a valuation on our tracts in the unit (INR’s Rubel SW) for asset valuation? Production started in June, 1st check October, 1st tax return will be 2026.
Cost depletion requires a reserve analysis which is done by oil companies and not easy for mineral owners. However, what is your basis? That is all you can write off with cost depletion. You cannot write off the value of the well if that greater than your tax basis. Did you recently purchase for a significant sum? Or did you inherit and have a low basis? The 15% percentage depletion also reduces your basis until the basis gets to zero. You continue to take the percentage depletion, but your basis never goes negative. There is no need to use an Ohio CPA as any CPA experienced with oil and gas can prepare your return. You will need to file an Ohio tax return if the royalties exceed the minimum requirements for Ohio non-resident tax return.
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We inherited the mineral rights from our grandparents who owned two farms acreages both of which surfaces were sold with those rights retained by deed. The rights were subsequently deeded to the grandchildren with each receiving fractional portions of the acreage. There has never been an assessment of the mineral value on either farm that I know of. The acreages are in Noble and Guernsey Counties, on top of the Point Pleasant/Utica shale play and covered by a lease with INR for each property. Two Unitizations (Rubel SW, Rubel SE) received ODNR approvals within the last year, and production on SW began with three wells in June. We have been notified we will start to receive payments in October. I’ve engaged a CPA firm (Berry Dunn, a national firm) located here in Portland, Maine. Hence, the Q&A about tax break depletion (“Cost” vs “Percentage”). Is the 15% allowed for the year based upon the “Basis”? The SW Unit is around 900 acres, and our share of that from the ODNR maps from the hearing is about 11 acres (or about 1.2%). How do we arrive at a basis for our 1.2%? Is it 1.2% of the total unit assessment of Rubel SW, or somehow just our little piece? Or, do we just calculate the 15% on the royalty $$ we receive for 2026? Complicating this a bit, each lease has a different royalty % (18%, Noble and 20% Guernsey..I’ve set up a tract per lease/per well tracking program in Excel for when the check stubs start arriving. But it is the valuation of basis and choosing between Cost vs Percentage Cost Depletion that we’re trying to understand. Thank you for any advice..I’ve researched a few places but still uncertain about these questions and wish to be in front of it before the checks arrive!
Your basis in the minerals was the surface sale price less inherited basis. Most people deduct the entire basis against a sale and so it is likely that the basis of your mineral basis was zero. Grandchildren received as gift so their basis is whatever your basis was at the time of gift - zero unless you did not deduct your full basis when calculating the sales profit. That is your cost basis. It has nothing to do with today’s value of the minerals or wells. Your percentage depletion is 15% of the gross royalties. For example, suppose the gross royalties are $10,000 and severance tax is $500 and costs deducted on the checks is $1,500. All your checks total to $8,000 deposited. Your percentage depletion is 15% of $10,000 = $1,500. If the same example, gross royalties = $10,000, less severance tax $500 and costs $4,000 for net deposit of $5,500, you still get the same percentage depletion = $1,500. Many, but not all companies, state the Gross Royalties, severances taxes and costs, on the annual 1099-Misc. Some only give you the Net Royalties after deductions. So you want to be sure about the Gross Royalties to calculate full 15% depletion.
Thank you for your insights, we’re new at this! The Noble County farm was sold for the appraised value of the land, buildings, and equipment with no deduction for basis (which was an unknown, ten years ago). Does this mean the basis now is zero for that property? The Guernsey County farm was donated (but retaining the mineral rights) by my grandfather to the National Council of Boy Scouts of America in 1969 (potentially for a camp) and we have no idea what the values were, and therefore no idea of basis. So, I think you are saying, our basis on both properties may be zero? In 1969, Marcellus was way in the future! If we were to transfer these rights to our two adult children upon our demise, as part of our estate, wouldn’t we need a"step up" in basis from zero to minimize capital gains taxes? Is Cost Depletion vs the 15% worth pursuing or just too complicated?
Basis is determined at the time of acquisition - purchase price or estate value at the date of death. It can increase for direct capital expenditure such as building a barn or decrease by depreciation or mineral depletion. If you received by gift instead, then it is the donor’s basis (not value at time of gift). Otherwise basis is fixed and unchanging during your lifetime. Your basis in the inherited farm was the value at the date of death of your grandparents. At that time, most likely all value was in the farm land and none in the minerals. When property was donated by your grandfather and he retained minerals, it did not change his basis. He likely got a tax deduction for the fair market value at that time, but he did not get any increased basis for the minerals. As to your estate, your sons will get a ‘step up’ in basis to the value at that time. That value will be determined after your death by an appraiser. In the meantime, your mineral basis is likely low. Cost depletion is a complex calculation requiring a reserve analysis and you will have to pay someone to do this. Without a high basis, he expense to do this may exceed any extra-fast write-off of basis down to zero for the cost vs percentage deduction. Cost depletion works for a sophisticated investor who has purchased minerals for a high sum based on extensive analyses or well life and reserves. It is rarely used by other mineral owners.