Royalty Payments from Seller Not Operator

I’ve been working for an “oil man” for fifteen years and my main job is preparing his revenue distribution reports. He has a few “investors” who have either bought a percentage of royalty or mineral interest that he owns, or have given him money to go purchase mineral or royalty interest at bankruptcy auctions in Oklahoma. I prepare and execute deeds to these investors and record them with the appropriate county clerk. The seller advises them not to submit a request for division order to the operator and instead pays them himself from the revenue he receives. He says they would be required to pay income tax to Oklahoma and some kind of out of state fee since they all live in Texas and the royalty revenue is from Oklahoma, He is basically acting as the operator. Is this legal?

I am not an attorney, but I live out of state from Oklahoma and do have to pay OK taxes. If “oil man” is deliberately trying to avoid legitimate taxes, I see a problem. Is he sending out 1099-MISC statements?

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Yes he sends out 1099’s. My concern is that he will often hold someone’s check and make up excuses why he can’t get it to them. He’s done that to me.

If you don’t mind me asking, are the taxes you pay to Oklahoma non-residence taxes or are you referring to income taxes?

I pay non-resident income taxes as an out-of state mineral owner.
I would be concerned about your first sentence.

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