Severance Tax

AAA

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.

INVESTOPEDIA EXPLAINS '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.

RELATED TERMS
  1. New Mexico State Investment Office ...

    The New Mexico State Investment Office (SIO) is responsible for ...
  2. Carried Interest

    A share of any profits that the general partners of private equity ...
  3. Sweet Crude

    A type of oil that meets certain content requirements, including ...
  4. Royalty

    A payment to an owner for the use of property, especially patents, ...
  5. Gas Guzzler Tax

    An additional tax on the sale of vehicles that have poor fuel ...
  6. Sour Crude

    The name given to barrels of crude oil that do not meet certain ...
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. Personal Finance

    Value-Added Tax (VAT)

    Value-added tax, or VAT, is a tax on the added value of a good as it moves through the supply chain to the end consumer. In effect, the tax is levied on the gross margin at each point in the ...
  7. Retirement

    Who is exempt from paying Social Security taxes?

    Learn about the groups of people who qualify for exemption from Social Security taxes, and explore the process of applying for exemption.
  8. Taxes

    Can you write variable costs off your taxes?

    Learn if you can deduct variable or fixed costs from your business taxes and learn more about business deductions, cost of goods sold and gross profit.
  9. Economics

    How is the invisible hand affected in a communist or socialist economy?

    Discover why the invisible hand of the market is compromised by socialist and communist economies, where the government controls the means of production.
  10. Economics

    What is the affect of the invisible hand on the government?

    Find out why government policy goals are often frustrated by the same forces that guide the invisible hand of the market towards efficient outcomes.

You May Also Like

Hot Definitions
  1. Multiplier Effect

    The expansion of a country's money supply that results from banks being able to lend. The size of the multiplier effect depends ...
  2. Command Economy

    A system where the government, rather than the free market, determines what goods should be produced, how much should be ...
  3. Prospectus

    A formal legal document, which is required by and filed with the Securities and Exchange Commission, that provides details ...
  4. Treasury Bond - T-Bond

    A marketable, fixed-interest U.S. government debt security with a maturity of more than 10 years. Treasury bonds make interest ...
  5. Weight Of Ice, Snow Or Sleet Insurance

    Financial protection against damage caused to property by winter weather specifically, damage caused if a roof caves in because ...
  6. Weather Insurance

    A type of protection against a financial loss that may be incurred because of rain, snow, storms, wind, fog, undesirable ...
Trading Center