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. 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. Sour Crude

    The name given to barrels of crude oil that do not meet certain ...
Related Articles
  1. Oil: A Big Investment With Big Tax Breaks
    Investing Basics

    Oil: A Big Investment With Big Tax Breaks

  2. Uncovering Oil And Gas Futures
    Active Trading

    Uncovering Oil And Gas Futures

  3. Is Buying A Franchise Wise?
    Entrepreneurship

    Is Buying A Franchise Wise?

  4. Top 10 Green Industries
    Options & Futures

    Top 10 Green Industries

Hot Definitions
  1. Hyperinflation

    Extremely rapid or out of control inflation. There is no precise numerical definition to hyperinflation. Hyperinflation is ...
  2. Gross Rate Of Return

    The total rate of return on an investment before the deduction of any fees or expenses. The gross rate of return is quoted ...
  3. Debit Spread

    Two options with different market prices that an investor trades on the same underlying security. The higher priced option ...
  4. Leading Indicator

    A measurable economic factor that changes before the economy starts to follow a particular pattern or trend. Leading indicators ...
  5. Wage-Price Spiral

    A macroeconomic theory to explain the cause-and-effect relationship between rising wages and rising prices, or inflation. ...
  6. Accelerated Depreciation

    Any method of depreciation used for accounting or income tax purposes that allows greater deductions in the earlier years ...
Trading Center