Terrel L. Shields
Elite Member
- Joined
- May 2, 2002
- Professional Status
- Certified General Appraiser
- State
- Arkansas
The severance tax on natural gas is $0.003 per MCF (1000 CU. ft). In 1954 or so when that rate was set, natural gas was selling for 4 - 11¢ per MCF, so the percentage rate was roughly 4 - 12% according to price...Even as late as the mid-1970's natural gas typically sold for under 54¢ per MCF.
Sheffield Nelson, for his own reasons, has decided to put the governor's feet to the fire with a hairshirt proposal to get a flat 7% tax. He claims Texas and Oklahoma have 7½ - 7% respectively and we should too. In fact, that is not the case. Both states have exemptions, and rebates. Rebates which are not legal in Arkansas. According to the Ark. Assessment Coordination Divisions (ACD), the state constitution requires all property be assessed and taxed. Intangible property is assessed at zero (stocks, bonds, etc.) but technically they must be taxed. So too mineral rights. The reality is that mineral rights are taxed haphazard by the counties and no county is supposed to bill for any amount under $2.40 (cost of paperwork) and the ACD is attempting to review that to raise that cost of paperwork allowance higher. Nevertheless there are people being taxed for mineral rights at a $1, or one reported being billed as $0.00. Another for $2.40. Non-producing minerals are not supposed to be taxed. Producing minerals, OTOH, are taxed and frankly, it is not a market value tax on reserves, but a production tax.
The governor's proposal is opposed by NARO (Natl Assoc.of Royalty Owners - Ark chapter) not in opposition so much to increasing the rate but our hope (vain hope at the moment) that the ad valorem will be reformed, and some monies dedicated to 'fixing' the awful website Arkansas has at the OG Commission. Additionally, we'd like to see some rules in place to protect the environment and for a goodly chunk of the severance be sent back to the affected counties.
Sadly, the old constitution does not make provision for severance money to be earmarked for the roads of the affected counties although they have banded together in an effort to lobby for such earmarks.
If we are going to model our tax after OKlahoma (or Mississippi, which has a similar system), we should abolish Ad valorem taxes and turn back 20 - 30% of the funds to the affected counties to help them.
They have to have the ad valorem on the minerals. It is the only money they get. For taxpayers it is a BIG problem because the lag in payment (assessed on Jan. 1 Year X is not due until Oct 10 Year X + 1) These wells are depleting rapidly, depletion rates are 60 - 70% per year on some. Folks have a bad habit of spending it before tax time.
An effort in the last ledge was made to foist the tax calculation upon the producers who hold the division order which tells everyone who gets what, but it failed. That would have had taxes automatically deducted from royalty checks and sent to the state. It is a good system and should be adopted. The assessors are completely overwhelmed by the Fayetteville play and productions are likely to be badly calculated in every county in the play.
A 7% tax is a 7% paycut for the royalty owner. A 7% tax affects the drillers despite Beebe's absurd claim that the cost won't be passed on. In fact, they will pass it on if possible.
Back to OK and TX, Texas has no income tax. Neither state taxes natural gas consumers. Arkansas has an income tax, a severance tax (small that it now), ad valorem tax, AND the consumer of natural gas pays 6% plus local taxes...something neither Tx or OK does to their gas buyers.
Sheffield Nelson, for his own reasons, has decided to put the governor's feet to the fire with a hairshirt proposal to get a flat 7% tax. He claims Texas and Oklahoma have 7½ - 7% respectively and we should too. In fact, that is not the case. Both states have exemptions, and rebates. Rebates which are not legal in Arkansas. According to the Ark. Assessment Coordination Divisions (ACD), the state constitution requires all property be assessed and taxed. Intangible property is assessed at zero (stocks, bonds, etc.) but technically they must be taxed. So too mineral rights. The reality is that mineral rights are taxed haphazard by the counties and no county is supposed to bill for any amount under $2.40 (cost of paperwork) and the ACD is attempting to review that to raise that cost of paperwork allowance higher. Nevertheless there are people being taxed for mineral rights at a $1, or one reported being billed as $0.00. Another for $2.40. Non-producing minerals are not supposed to be taxed. Producing minerals, OTOH, are taxed and frankly, it is not a market value tax on reserves, but a production tax.
The governor's proposal is opposed by NARO (Natl Assoc.of Royalty Owners - Ark chapter) not in opposition so much to increasing the rate but our hope (vain hope at the moment) that the ad valorem will be reformed, and some monies dedicated to 'fixing' the awful website Arkansas has at the OG Commission. Additionally, we'd like to see some rules in place to protect the environment and for a goodly chunk of the severance be sent back to the affected counties.
Sadly, the old constitution does not make provision for severance money to be earmarked for the roads of the affected counties although they have banded together in an effort to lobby for such earmarks.
If we are going to model our tax after OKlahoma (or Mississippi, which has a similar system), we should abolish Ad valorem taxes and turn back 20 - 30% of the funds to the affected counties to help them.
They have to have the ad valorem on the minerals. It is the only money they get. For taxpayers it is a BIG problem because the lag in payment (assessed on Jan. 1 Year X is not due until Oct 10 Year X + 1) These wells are depleting rapidly, depletion rates are 60 - 70% per year on some. Folks have a bad habit of spending it before tax time.
An effort in the last ledge was made to foist the tax calculation upon the producers who hold the division order which tells everyone who gets what, but it failed. That would have had taxes automatically deducted from royalty checks and sent to the state. It is a good system and should be adopted. The assessors are completely overwhelmed by the Fayetteville play and productions are likely to be badly calculated in every county in the play.
A 7% tax is a 7% paycut for the royalty owner. A 7% tax affects the drillers despite Beebe's absurd claim that the cost won't be passed on. In fact, they will pass it on if possible.
Back to OK and TX, Texas has no income tax. Neither state taxes natural gas consumers. Arkansas has an income tax, a severance tax (small that it now), ad valorem tax, AND the consumer of natural gas pays 6% plus local taxes...something neither Tx or OK does to their gas buyers.