Royalty Taxes for Out of State Texas Mineral Owners

General Mineral Rights Discussion
21

Jay,

As long as the producing well is in Texas, you don’t owe Oklahoma state income tax even if the company is in Oklahoma.

Now for Texas, you may owe mineral tax. This is when the minerals are producing. It’s usually a small amount, so you may want to check with your county assessor’s office and see if you own anything and make sure they have your address or they can sell your minerals for back taxes.

I’m not sure why you would pay state income tax in Virginia for money you received in other states, but that is out of my area, so check with your CPA on that.

I live in Texas, but some of my income is from Oklahoma.

22

Thanks Virginia,

I think I have to pay Virginia state income tax (my residency is in Virginia) on any income I receive no matter where it is from per my CPA. However if someone knows differently please let me know. I will check up on the “mineral tax” you mentioned.

Thanks again. Jay

23

Jay,

Ad Valorem taxes on minerals are levied at the County level. Ad Valorem is Latin for according to value. In Texas (and in some other states), this tax becomes payable only when minerals are producing (as opposed to non-producing), and are billed and collected once per year.

Texas doesn’t have a state income tax. Sounds like VA is like a few other states where they tax all income even if it didn’t come from their state.

Sure glad I live in TX.

24

Update:

I called the county property tax office and received more details about the mineral royalties property tax in TX. They put me in contact with the division of the office that specifically deals with oil and gas. So here is the way it works:

  • A “company” of experts determine the “fair market value” of each well on Jan. 1. This is what your property tax will be based on and NOT on your actual royalty income from the well.

  • The well appraisal is established by working “closely” with the operating company (Chesapeake, Devon, etc.) since the operating company is also taxed based on this appraisal (this is what I was told).

  • The appraisal is complicated based on previous years’ price of gas and well production data and then applying predicted well production decline curves as well as other technicalities.

  • You may protest the appraisal but you must have your own appraisal to show that theirs is overly aggressive and why.

  • There is a specific tax rate for oil and gas in my county and is less than 0.5%.

Here is the kicker. You pay taxes based on this appraisal and not on your actual income from the well(s). Therefore if the well produces less than expected and/or the gas price drops (as in my case both has occurred this year), I will still be liable for the taxes based on the beginning of the year appraisal. On the flip side, if you have a well that is an overachiever and gas prices go up, then you ultimately will pay less taxes than you would based on your royalty income.

For this year taking my federal and VA taxes plus the TX county property tax, I will be lucky to break even since gas prices have tanked and production pretty much has gone to a trickle. I know this because the appraisal office basically told me what I would be taxed on this year since it is determined at the first of the year. It is a total scam if you ask me. Last year the county tax I paid came to be about 5% of my income vs. the 0.5% the county oil and gas tax rate.

My VA CPA says I can take a deduction on the property taxes paid to the county in TX keeping in mind I do not live in Texas. I may even be taking a loss this year.

I emailed the energy company to see if they were going to protest since gas and production has gone down this year but no one has gotten back to me. I would think that the energy company is in the same sinking ship as I am so hopefully they will address it.

This is very upsetting all around.

25

We live in Arkansas. Our mineral rights are in Texas.

We pay Arkansas income tax on the royalties we receive from Texas.

We pay property tax in Texas, to the County in which the minerals are located. The taxes apply only if there was production on January 1. If a lease begins with production after January 1, no County property taxes are owed for that year; they’ll get you next year.

26

Jay,

You can write a letter to your County appraisal office, state that your well/property was over appraised for the year. Attach a copy of your 1099 from the gas company. Usually they will lower your taxes.

27

I reside in Alaska and just received my first check from Texas property. What taxes will I have to pay?

28

Joe,

Every year about March, the county appraisal district will mail mineral owners an assessment of value on their minerals and a tax notice for Ad Valorem taxes. In Texas, you only pay when you have production. So, be sure they have your address; if not, call your county appraisal office.

29

Here’s a question for those of you who understand Texas royalty issues:

My family has just learned that we have interest in a property that we didn’t know was in the family. Apparently there has been a comedy (or tragedy) of errors over the past 3 years of production there, and some faulty title opinions, hence we were not notified in the past. It’s just being straightened out and we have fairly recently signed a ratification; division orders reportedly will be sent soon. So the question is:

  • Will we owe back taxes on any royalty payments we may receive for the past 3 years production, even though we were not aware of production there, much less that we even had the interest? We didn’t receive any appraisal notifications, nor any county tax statements for this property.
30

Call your county tax appraisal office. Since you didn’t receive a check, they may overlook the taxes or you probably have to pay the back tax once you receive the check. Also, if you don’t pay taxes on your producing minerals for a certain number of years, then you will forfeit them. I can’t remember the number of years, but I think it’s 5 years. Some on this site may know for sure.

31

Thanks Virginia, for the info on overdue taxes. If anyone on here knows the answer to this for sure (do you forfeit your interest if you’ve not paid taxes, and if so, for how many years), please let me know, or direct me to where I can find out.

Here’s another one: We talked to our county assessor 2 days ago, and she told us that TX law requires the mineral interest owner to contact the county when they have received royalty payments but no tax appraisal or statement. I asked her to send me any info she had about the rights and responsibilities of a mineral interest owner, and only received a brochure about how to dispute an assessment. That isn’t what we need to know, at least not yet. We want to read for ourselves where it’s stated in the code that we are responsible for reporting income (that a company may not have reported, I guess; otherwise, why would the county not know about it in order to send us a statement?) I told her I wanted more applicable info on taxation, so she has had their attorney call us; we just haven’t connected yet. She seems to be trying to be helpful and we appreciate that. But I’m not sure at this point if she’ll know about the forfeiture issue. Hopefully we’ll connect with their attorney tomorrow, and he can tell me.

32

John,

The oil company has been paying their taxes. Your money has been put on hold.

You can call RCC, Railroad Commission at 512-463-7158 or TLMA, TX Land & Mineral Owners can probably tell you about the statutory on taxes.

I know the appraisal district should have been able to tell you how long you have to pay your taxes before your minerals are auctioned off for back taxes.

33

Virginia,

How does the county know about me (or any other interest owner)? Whose responsibility is it to notify the county about who has interest in any given property? I’ve never contacted the tax assessor before; they’ve always seemed to know about my interest, but in this one case they don’t. I figured that is because they have not been notified by the company; as I said, I’ve just signed a ratification and no division order yet.

Thanks for your insights and information.

34

Thank you I noticed in the check stub, money was withheld from the check, I assume they will be paid by the withholder.

Virginia Pflum said:

Joe,

Every year about March, the county appraisal district will mail mineral owners an assessment of value on their minerals and a tax notice for Ad Valorem taxes. In Texas, you only pay when you have production. So, be sure they have your address, if not, call your county appraisal office.

35

Joe,

The money withheld from the royalty check is Severance tax, that is different from county Ad Valorem tax. When you file your Federal tax, you can take off depletion tax.

John,

The county doesn’t know about you unless you have your mineral recorded with the county clerk office. That is why so many people have wells and the oil companies can’t find them, so they don’t get a check. After minerals have produced in Texas, a person started paying county Ad Valorem tax and if that isn’t paid yearly, then it can go to the auction block for back taxes and this is within either 3 or 5 years, can’t remember for sure.

So, if you have any mineral in any state, you need to go to an attorney and have him help you get proof of ownership filed at your county clerk’s office. I hate to keep saying, go to an attorney, but that is the safest way to make sure you keep your minerals.

36

Virginia, I agree heartily that I tire of telling people to consult a lawyer, but people have busy lives and they either can’t or won’t take the time to put in the required study to make it unlikely that something will bite them in the rear when they least expect it. When you consider that, an attorney who will actually look after your best interest is cheap. If they actually will look after your interest, there is a lot of value added. Beware though, there are lawyers out there who will give your needs little consideration and just want some billable hours, you need to get references and know enough to spot if they are doing a good job. I have hired a few and had to fire them because they wanted to do everything but what actually needed to be done, you have to watch for that. Do enough study so you can tell them what you want done, sad it has to be that way but that is the way it is.

37

R. W.,

You are right about choosing the right lawyer. Lots are in it for the money only. Also, lots of people try to use a general attorney for things they need a specialist. I know lots of good general attorneys, but when it comes down to oil and gas, get someone who specializes in oil and gas. Then have a meeting with him or her, see if they will tell you why this needs to be done. If they don’t tell you, get another lawyer. Lots of lawyers think they are God, won’t tell you anything because they aren’t sure. Over the years, I have seen lots of good and bad attorneys, but I still think when you are about to lose your mineral or sign something you don’t understand you still need to talk with one. Also, like R W last line says, do enough studying to know what you want, remember lawyers aren’t mind readers. We are lucky today to have internet to help us, use it.

38

The best I can find out is nonpayment on mineral Ad Valorem taxes is 5 years, but it has lots of variation.

The oil company is responsible to notify the appraisal district of all RI owners and their address.

39

Virginia,

Thanks for the info. Just got off the phone with an attorney for the County in which I hold mineral interests. He didn’t give the time frame of 3 to 5 years, but informed us of the possibility of losing a property due to lack of payment. However, he did say that many if not most companies in our County will pay those taxes as an act of good faith to keep the owner from losing the interest until the owner can be located. He also said that his office will rarely actually go so far as to foreclose on the interests and take them from the owner, and that in most cases, this happens when someone has died and left no heirs. He noted that because we are already on the tax rolls, his office, which handles delinquencies, will likely find us if the County staff doesn’t have the time to do so via cross-matching names of possibles with known active owners, and so the likelihood of us having anything to go into foreclosure is actually pretty slim.

His advice re: hiring an attorney was that a good land man can accomplish much in the way of helping us to ID our interests, and that an attorney is not always necessary (unless, of course, litigation is required.) So, while we feel somewhat reassured, we’re planning on contacting a land man for some help researching our properties. This one issue occurred because we were ID’d as interest owners by a company, and we got a tax statement, but the company did not find us and so we were getting tax statements, but no revenue. We’re motivated to discover all that we need to discover, now that we understand a bit more about this.

Thanks for all of your help!

Virginia Pflum said:

Joe,

The money withheld from the royalty check is Severance tax, that is different from county Ad Valorem tax. When you file your Fed. tax, you can take off depletion tax.

John,

The County doesn’t know about you unless you have your mineral recorded with the County clerk office. That is why so many people have wells and the oil companies can’t find them, so they don’t get a check. After minerals have produced in TX, a person started paying county Ad Valorem tax and if that isn’t paid yearly, then it can go to the auction block for back taxes and this is within either 3 or 5 years, can’t remember for sure.

So, if you have any mineral in any state, you need to go to an attorney and have him help you get proof of ownership filed at your County clerk’s office. I hate to keep saying, go to an attorney, but that is the safest way to make sure you keep your minerals.

40

John,

Glad things are working out for you. I didn’t understand that you were ID as an interest owner. I thought the oil company just found you and you got your first check.

Do you have the name of a good land man? If not, I can give you a name offline. If you need the name, email me at pflum1@sbcglobal.net

Also, Buddy that is on the forum sounds real good on these issues. I don’t know him, only what knowledge he has given online.