Is it possible to successfully challenge the tax appraisals put out by the tax appraisal districts? I am a very small NPRI owner (percentage wise, not stature). It seems to me the appraised value should have a correlation to the revenue stream. Is there a way to find the “formula” they are supposedly following for the appraisals? In my case, my various wells appraisals range from 17 to 2000 times current monthly income. My revenue has declined 61% from last year to this, but the total appraised value has only gone down 26%. In some cases the taxes on a well will exceed the revenue for the year. In many cases they have raised the appraisal even though the revenue has significantly declined and there are no documented changes that would justify an increase in value.
In Texas, tax valuation depends on the prior year’s average oil price and gas price, the production decline curve and anticipated economic life of the well. It is an engineering valuation which reflects the estimated sales value of your minerals based on income over time, reduced by the present value of future funds. Similar to the value of your house which is supposed to reflect the sales value of your house. The appraisal notice should give you the name of the independent appraisal company and a login for its website to access the detailed workpapers for the appraisal of each well. Such as Pritchard & Abbott or Capitol Appraisal Group. Here is a link to the CAGI site which gives an explanation of the process and the Texas statute. https://cagi.com/understanding-your-appraised-value
Not clear if you’ve downloaded appraisal spreadsheets for each of your wells, per TennisDaze advice. Capitol Appraisal Group (CAGI.com) tax-values many wells across Texas, easy to register on CAGI.com and appraisers will speak to you on the phone. Download spreadsheet for each well, shows their estimate of yearly production for life of well, and discount rate used to present value each year’s production using last years commodity price.
The Midland County holdings I have questions about are appraised by Pritchard & Abbott. I did not know to download the 2023 analysis of RI value, but have downloaded the 2024 analysis.
When my revenue has dropped by 61%, I find it appalling that they are raising the appraisals on 13 of 40 parcels. However the most troubling pertains to 4 parcels that are part of the same unit.
Name 23 revenue Jan-May 24 revenue Forecast 24 revenue
Ger Spry TR2 $228 $77 116
Ger Spry TR3 $393 $132 199
Ger Spry TR2 Dean $0.65 $0.16 17
Ger Spry TR3 Dean 0 0 28
As you can see, I am being taxed on a parcel I have never received revenue on. All 4 parcels have had their appraisal raised though it is obvious that revenue is down.
Should I try to protest this? Should I be sending a certified letter to the producer asking for back revenue on the parcels I am being taxed on with no revenue paid?
In comparing my P&A appraisals between years, the oil price is approximately same and gas price is lower. However, where values have increased, the economic life of the well or unit has increased, so new appraisal is valued on more years of income. Only the operator can dispute that. Another factor is if the unit volumes increased during 2023, due to either more wells producing or workovers increasing production volumes. Are you sure that these are all the same unit, with one set having Dean in name? Look at the RRC lease number. If they are the same RRC Lease, then the value will be apportioned among the tracts (such as 50%, 30%, 1%, etc to add up to 100%). With units, you may or may not be paid on all tracts, but P&A may be allocating the value regardless. Check your royalty decimal to make sure that it matches your checks. Finally, if I am reading your figures correctly, during 2023, you received $621.65. First 5 months of 2024, you received $209, which indicates 2024 will be $502. Combined 2024 estimate is $331.17, which is less than you expect. To protest, you need to provide data which indicates that P&A has made an error. Your first step should be to contact P&A appraiser for Midland County and ask if they can walk you through the process. Be sure to download and save the 2024 detailed workpapers for comparison to 2025.
TennisDaze,
Thank you for your response. Yes, these are all part of the same unit - RRC lease # 21487. As I understand it, I have two different production areas in each of two tracts of the unit. It is possible that the increase in the appraisal is based on increasing the life span to 14 years, but since I don’t have the detail from last year (2023 appr.), I am not able to confirm this. My appr. detail does not reflect anything that totals to 100% for the tracts. There is a participation factor for each of the parcels, but they total to .36. Your math is correct, with the exception that the combined projected revenue for 2024 is $360 (116+199+17+28). However the appraised value is being raised to $1140 which will be the basis for the taxes. It seems to me this is equivalent to an appraiser saying we think inflation will raise the value of your home to more than double your present value, so we are going to tax you on that amount. I have ownership in other parcels that are not producing and do not appear on the appraisal, as I understand that non-producing properties have no value and are not subject to taxation.
Great Post! Taxes should be based upon the actual production in my opinion. But that is not the way it is. It needs to be changed in Texas.
I am guessing that the reason why the 4 tracts total to 36% is because there are more tracts in the entire unit which would total 100%. So the appraisal for each tract is based on its percentage within the unit. The appraisal value is the sales / fair market value of your minerals based on the volumes, average monthly price during 2023 (as adjusted by a federal number), anticipated well life, production decline curves and reduced by the present value. In other words, it is not an income tax based on your royalties for 2024. This is similar to the tax appraisal on a rental house, it is the market value of the house and not the rental income you receive for 12 months. If you sold your minerals, you would likely ask for at least five times your annual royalties. In that sense, the appraisal market value of 1,140 is only 3 times your anticipated 2024 income. Non-producing minerals are not taxed because they have no value. You would not simply give them away to anyone who asked, but would try to find out the value based on activity in the area, what potentially productive formations are underlying, etc. Rather, the owners and their fractional interests are not known to the county and there is not a readily ascertainable standard to determine value. However, I understand that some states do tax non-producing minerals on some basis.
Yes, there are other tracts in the unit. I am aware of how mineral rights are calculated.I disagree with the concept that they are calculated similar to a rental house. The only way that comparison would be true is if the rental house was appraised on anticipated future income which is what is being done to mineral rights. The so called appraised value is based on multiple years of anticipated income - it is not based on a comparison to similar properties that are bought and sold on the open market, like real estate. The simple fact is that with the way mineral right are appraised, I am paying taxes in 2024 for estimated income 14 years from now (plus all intervening years), and then next year, I will again pay taxes on an altered estimate of the same income, along with all the other 13 years. That means that I am paying taxes 14 times for the same future income based on some estimate.
But, my real concern is that appraised value is increased on parcels on which I have never received income. That situation makes it appear that either the producer is using one set of books to report to the appraiser and a different set of books to pay royalties, or they have paid the revenue under a different parcel which has been reported and I have been taxed on and then reported the same income on the parcel for which I have not received revenue, meaning I am being taxed twice on the same revenue.
This country was founded on the basis of no taxation without representation. As an out of state owner of very minor mineral rights, I have no voice in how Texas taxes my holdings since I am not a resident of the state. If the state wanted to be fair, they would tax the sale of mineral rights, not projected income as that would be closer to the concept used on real estate, where appraisals are based on sales of comparable properties. Also, in Oklahoma, with respect to retired citizens, appraisals can be frozen.
To further understand Texas O&G taxation, you can find the appraisal manuals on the comptroller’s website. Funding for local schools and counties is mainly provided through ad valorem taxation, which is based on fair market value as of Jan 1. The state does not charge an ad valorem tax, but does require the appraisal districts to follow statewide valuation practices.
If you are not receiving royalties, you should contact the operator. The appraisal notice is how I once discovered that a well had been producing for 10 years and the account was in suspense. A very nice check more than compensated for the taxes.
Here is a link to Capitol Appraisal that may offer more explanation: htpps//www.cagi.com/understanding-your-appraised-value
Finally, be sure to check the decimal interest and other information for accuracy, and file a protest to get corrected.
The valuation method of oil and gas interests is specified in Texas Tax Code Sec 23.175 and it is based on future income, based on prices, declines, present value, economic life, etc. The same as the valuation for federal gift tax or estate tax. Texas is a nondisclosure state and real property sales prices are not publicly listed. Unlike many states such as Oklahoma where you can find out what everyone has paid for property. So sales prices of minerals are not available. Texas does not have an income tax and does not tax the sale of real property or royalties. Oklahoma has an income tax on royalties. Texas has a “freeze” on value of a homestead for senior citizens, but that does not apply to rental properties or other real estate holdings, including minerals, which they own. I have no idea how Oklahoma frozen values are applied. However, it is my understanding that the operators in OK pay the ad valorem taxes on oil and gas interests and individual mineral owners do not pay directly. Your argument of “no taxation without representation” implies that you think that out-of-state owners should not pay Texas ad valorem taxes, but still get the income benefits. Perhaps instead you can suggest this as a change in OK law so that all nonresidents are exempt from OK income taxes on royalty income. If you have a dispute with the operator about unpaid royalties or that you do not own minerals in a tract, then you need to take that up with the operator to either get in pay or be removed from the deck for that tract. Here is a link to Sec 23.175 - https://codes.findlaw.com/tx/tax-code/tax-sect-23-175/
If my comments have offended anyone, particularly someone who has posted helpful information, I apologize. I am not trying to imply anything about Texas law nor am I trying to imply I should be exempt from taxes.
I have always been willing to pay reasonable taxes. Sales taxes and income taxes are understandable as they are a percentage that applies to everyone equally. Real estate taxes are understandable (with respect to OK law) as they are based on comparisons to like properties based on sales prices. With respect to real estate taxes in OK, the protest process is fairly straight forward as the “comps” are documented and the process is documented.
I am frustrated with the appraisal and taxation process on mineral rights in Texas. Here are my complaints:
1 - I am frequently told “it’s complicated” which implies that the person making the comment thinks I am not capable of understanding or simply does not want to be questioned.
2 - When I look at the appraisal information supplied by the appraisal district, it only shows the old and new appraisals and nothing to explain the change. When I receive that notice, I am only allowed 30 days to file a protest and yet the information does not reach me till 1/4 of that time has expired.
3 - In order to try to understand the changes, I have to go to a different site and download a document which is apparently only available for a limited time, as I cannot access the 2023 Analysis of RI. A written request to obtain that information goes unanswered. When I examine the Analysis of RI, it does not provide all the information to calculate the appraised value myself, instead, including phrases like “This projected owner income for each year is then discounted to present worth with a discount factor which assumes income is spread evenly throughout the year (a standard mid-year formula).” They do not show the revenue figures reported to them used to base their calculations, only the projected income estimates.
4 - The instructions supplied for filing a protest appear to not be specific to the mineral rights issue and appear to require filing a protest document for each parcel and backing that up with an affidavit. When I have 40 parcels and see apparent problems with at least 13 of them, that is a huge amount of paperwork.
In short, I have found the entire process to be cloaked in obscurity instead of openly documenting what is going on. To be perfectly clear and not be accused of implying anything, it does not matter how many people call a skunk a cat, it is not, it is a skunk. The mineral rights tax in Texas is not a value based tax. It is a tax based on guesstimates of future income and that valuation is not clearly and openly communicated.
I understand that you are frustrated and confused about well valuations. This is not a simple process as there is reservoir engineering component, decline curves, discounting to get to present value, etc. That is the reality of how accurate appraisals are done for purposes of gift and estate taxes and for purchases and sales by oil companies and investors in the industry. And professionals do use estimated future pricing because prices rise and fall and no one knows exact prices through the future. Individuals on their own and without this level of expertise, do simple calculations such as 60 X monthly royalties, but that is an estimate and not an accurate market valuation. So it is complicated - not because you are incapable of understanding but because, like most of us, you are not a reservoir engineer. You can take the time to pull each well’s decline curve and to study and learn the engineering and valuation process if you want. Or you can accept that the full-time professionals at the appraisal companies are doing the engineering and following Texas law regarding the pricing, reductions (severance tax) and present value. It is ridiculous for you to call the Texas system “skunky” because you cannot replicate this with a simple spreadsheet. Alternatively, you can sell your Texas minerals and reinvest in Oklahoma minerals if that would make you more comfortable.
We have leases split between Midland/Upton counties. We use a firm in San Antonio that automatically protest the tax values each year. The 1st year they saved us $1,000. The last 2 years their calculations were right in line with the new tax values so we didn’t save anything. It costs nothing to protest and they only charge 35% of what they save you. It’s worth it as they do all the work.
Other mineral owners in same wells appreciate this as any reduction will be applied across the board to all owners.
You, me and thousands of others are tired of property taxes in Texas. You should not have to pay to own your property every year in Texas or any State in my opinion. As for oil and gas taxes it should be based upon the actual revenue you receive. Not some incorrect or inflated value of what some taxing districts thinks the future production or prices are going to be. It STINKS!
I am not interested in having Texas institute an income tax. Abolishment of property taxes will require an alternative method of fund raising for schools, county and city governments. What is your specific proposal? Perhaps the substitution for taxing producing wells could be a massive increase of severance tax rates on royalty owners - 30% 40%? Substitution for property taxes on houses and commercial properties would most likely only be accomplished by an income tax. Problem is how to tax commercial property owners which have a tax loss. Difference will rate burden individuals,including on royalties. Or sales tax rates be raised to 20% or more? Finally, the tax districts do NOT make up the applied future prices. Pricing is set by and mandated to be in compliance with Texas statute, as discussed above.
In taxes , if taxes are reduced in one area, they are shifted to another. More than likely the state would compensate somehow, such as suspending severance tax exemptions now offered, such as the 05 exemption where new high cost wells have a significantly reduced rate for 10 years, or the code 11 low-producing well exemption. As previously suggested under this topic, the alternatives are basically to accept, protest, or divest.
When I opened this post, I was looking for information on how one, particularly a small NPRI owner, can successfully protest evaluations that are going up when revenue is steeply declining. Some of the posts have provided some useful insight and I appreciate that info. I have contacted the producer about revenue they have reported for tax purposes that I have not received. We will see if I get a response.
Some of the responses have misquoted me, accusing me of calling something “skunky”. I made an irrefutably true statement - “To be perfectly clear and not be accused of implying anything, it does not matter how many people call a skunk a cat, it is not, it is a skunk.” Those of you accusing me of calling something skunky need to improve your comprehensive reading skills. I go to great lengths to not call people or objects names.
The most common definition of value is “what a willing buyer will pay a motivated seller”. After reading months of posts on this forum, plus additional research, I do not perceive any consensus on what mineral rights are worth.The best advise I have seen is simply “do not sell”.
I have been told that Texas does not have an income tax. That is true if one is speaking of a general income tax applied fairly across all income. But, if you define income tax as simply being a tax levied on income then production tax is an income tax as it is levied on the income generated from the production of minerals. And the so-called ad-valorem tax levied on mineral rights is based on estimates of future revenue based on the most recent years income that has already been taxed, according to the info posted on the Pritchard & Abbott site.
Some of the responses to this post (remember original intent) have been very defensive responses reacting as if the tax system is under attack and even arguing merits of various taxing systems. I am not advocating for the elimination of any tax. I am a firm believer that for democracy to remain a viable and successful form of government, it must be based on openness and the right of anyone to trust but verify what they are paying taxes on. That is not the case with mineral rights ad valorem taxes.