The way I understand it, you put your royalty income on a Schedule E (separate one for each property that generates royalty), deduct the property tax for it on the line for taxes, any other expenses, depreciation, and the net for that property is added with any other to your income total. I think any nonproducing properties for which you pay taxes can have the taxes deducted as expenses for your oil and gas business, along with things like lawyer’s fee for getting advice about a lease, postage for mailing your taxes, expenses for getting copies of deeds, dues for Royalty owners’ associations (such as NARO), etc.
The West Virginia property taxes are based on the assessment which is related to any revenue from the property (royalty) which is reported to the state tax department by the producer, then reported to the county by the state tax department. This determines the property tax (assessed value times the local tax rate).
West Virginia state income tax is a different situation. Depending on your total income and your income from West Virginia sources, you may or may not need to pay WV state taxes (don’t know particulars but I’m sure this is easy to find). For my state (NC) since the NC state tax rate is higher than WV state tax rate, NC gives me “credit” for paying WV taxes but gets its share of my WV earned revenue by subtracting the WV tax rate from NC rate and charging me that % on my WV earnings.
TurboTax can calculate this.
Back to the likely increase in property tax due to increased revenue due to increased production, this is true but will be delayed a couple of years because of how they do things in the state tax office and the local tax office. You should get a revaluation notice for any property that is being reassessed upwards.
I am not an accountant nor an attorney so check this out, but this is my understanding.