Severance Tax


DEFINITION of 'Severance Tax'

A tax imposed on the removal of nonrenewable resources such as crude oil, condensate and natural gas, coalbed methane and carbon dioxide.

Severance tax is charged to producers, or anyone with a working or royalty interest, in oil or gas operations in the imposing states. You may be charged severance tax even if you do not realize a net profit on your investment.

BREAKING DOWN 'Severance Tax'

Certain wells may be exempt from severance tax based on the amount they produce. Different states have different rules. For example, in Colorado, as of 2008, an oil well that produces less than an average of 15 barrels per producing day, or a gas well that produces less than an average of 90,000 cubic feet per producing day, is exempt from this tax.

It is important to note that severance tax is different from income tax, and you still have to pay all federal and state income taxes on oil and gas income in addition to severance tax.

  1. New Mexico State Investment Office ...

    The New Mexico State Investment Office (SIO) is responsible for ...
  2. Sour Crude

    The name given to barrels of crude oil that do not meet certain ...
  3. Gas Guzzler Tax

    An additional tax on the sale of vehicles that have poor fuel ...
  4. Royalty

    A payment to an owner for the use of property, especially patents, ...
  5. Sweet Crude

    A type of oil that meets certain content requirements, including ...
  6. Carried Interest

    A share of any profits that the general partners of private equity ...
Related Articles
  1. Investing Basics

    Oil: A Big Investment With Big Tax Breaks

    Oil and gas investments can provide unmatched deduction potential for accredited investors.
  2. Active Trading

    Uncovering Oil And Gas Futures

    Find out how to stay on top of data reports that could cause volatility in oil and gas markets.
  3. Entrepreneurship

    Is Buying A Franchise Wise?

    If you like being your own boss, this is not the job for you.
  4. Options & Futures

    Top 10 Green Industries

    Put a little green in your wallet by investing in these growing areas.
  5. Active Trading

    Unearth Profits In Oil Exploration And Production

    Drill down into financial statements to tap into the right companies and let returns flow.
  6. Taxes

    The Purpose Of The W-9 Form

    The W-9 form provides key data your clients need if you're an independent contractor. Just be sure you're not really an employee who should fill out a W-4.
  7. Taxes

    Revisiting the Internet Sales Tax Bill: 2013 Vs. 2015

    Learn about the Marketplace Fairness Act of 2015 being reviewed by congress and the differences between it and the 2013 Marketplace Fairness Act.
  8. Economics

    Understanding Donald Trump's Stance on China

    Find out why China bothers Donald Trump so much, and why the 2016 Republican presidential candidate argues for a return to protectionist trade policies.
  9. Economics

    Will Putin Ever Leave Office?

    Find out when, or if, Russian President Vladimir Putin will ever relinquish control over the Russian government, and whether it matters.
  10. Investing Basics

    Internet Sales Tax's Effect on Interstate Commerce

    Find out how a national Internet sales tax could affect interstate commerce, and why some bigger online retailers are lobbying for such a tax.
  1. Are personal loans tax deductible?

    Interest paid on personal loans is not tax deductible. If you take out a loan to buy a car for personal use or to cover other ... Read Full Answer >>
  2. Does a Flexible Spending Account (FSA) cover braces?

    Funds from a Flexible Spending Account (FSA) can be used to cover costs associated with installing, maintaining and removing ... Read Full Answer >>
  3. Does QVC charge sales tax?

    QVC, an American TV network, is registered with states to collect sales or use tax on taxable items. QVC is also required ... Read Full Answer >>
  4. Does a Flexible Spending Account (FSA) cover glasses?

    The funds in a Flexible Spending Account (FSA) can be used to cover most common medical expenses; this includes the cost ... Read Full Answer >>
  5. Are tax brackets adjusted for inflation?

    Each year, the U.S. Internal Revenue Service (IRS) adjusts tax brackets for changes in the cost of living to calculate federal ... Read Full Answer >>
  6. Can a Flexible Spending Account (FSA) be used for a spouse?

    The U.S. Internal Revenue Service (IRS) allows Flexible Spending Account (FSA) funds to be used for qualified medical expenses ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Quick Ratio

    The quick ratio is an indicator of a company’s short-term liquidity. The quick ratio measures a company’s ability to meet ...
  2. Black Tuesday

    October 29, 1929, when the DJIA fell 12% - one of the largest one-day drops in stock market history. More than 16 million ...
  3. Black Monday

    October 19, 1987, when the Dow Jones Industrial Average (DJIA) lost almost 22% in a single day. That event marked the beginning ...
  4. Monetary Policy

    Monetary policy is the actions of a central bank, currency board or other regulatory committee that determine the size and ...
  5. Indemnity

    Indemnity is compensation for damages or loss. Indemnity in the legal sense may also refer to an exemption from liability ...
  6. Discount Bond

    A bond that is issued for less than its par (or face) value, or a bond currently trading for less than its par value in the ...
Trading Center