Question: Is a non-participating royalty interest responsible for paying any portion of property taxes?
You will only be taxed upon the value of production from your interest if and when that happens
Dear Ms. Savci,
When a NPRI goes into production, here is what you can expect:
1. You will pay severance taxes each month to the State. The Operator pays those and is shown on your check.
2. You can exect to pay ad valorum property taxes as long as the property has an asset value. This payment is generally referred to as a property tax.
There are some counties in west Texas who are experimenting wtih taxing severed mineral interests. The letters have already gone out and will surely be challenged.
If the owner of the soil wants some re-imbursement becuase he paid 100% of the taxes and you own a property right, tell him to take it up with the Tax Assessor/Collector.
Best,
Buddy Cotten
If you are referring to the property tax on the surface, generally no. Buddy points out they may tax you on the value of the mineral account, because even though a non-participating royalty is not a mineral interest, per se, it is an interest in the royalty stream, you are making money off the income of real property. I have seen several tax bills on NPRI interests.
It would seem to be very difficult for appraisal districts to know the difference between a mineral interest and an NPRI, without reviewing the deeds. Even then, there are many different types of NPRI interests, so when it becomes too much like a mineral interest is not always an easy call.
You've received some good responses Buddy, Charles and Wade.
In my experience, once a NPRI interest becomes productive, ie has a producing well or wells on it and you receive a royalty check, the appraisal district will tax the property as a mineral property and you will be responsible for paying your portion of the mineral taxes.
Now, if the NPRI Interest isn't producing, there should be no taxes due from what I understand.
Hope this helps!
I would just add that you can expect to pay ad valorem property taxes as long as the property has an asset value on the date that the asset is valued. My understanding is that in Texas this mineral valuation is done on January 1st of each year. In other words, if you have any kind of a royalty stream on January 1st, then as far as the Appraisal District is concerned, you have that same royalty stream for the WHOLE YEAR. So if a producer shuts in or caps a well on January 2nd, then the royalty owner continues to pay property taxes as if he received royalties at that same amount for the entire year. Now maybe during a protest a royalty owner could offer proof of shut in or cap and reduce his tax bill, I don't know and have never heard of somebody doing that. But it IS theoretically possible to pay more in property taxes in any given calendar year than you received in the form of actual royalty payments. My good friend Sam appears to be in this situation right now. He got a tax statement from the CAD several months ago but supposedly received NO royalty payments all last year.