Written by Chloe Marie –
Research Fellow
This
series addresses severance taxes on oil and natural gas imposed by various
states, and this seventh and last article will review the severance tax systems
for the state of Florida, New York, Tennessee, Illinois, and Virginia. In six
prior articles, we addressed the severance tax systems for
the states of Pennsylvania, Ohio, and West Virginia; for
the states of Texas, Oklahoma, Louisiana, and Wyoming; for
the states of North Dakota, Arkansas, New Mexico, and Colorado, for
the states of Kansas, South Dakota, Montana, Utah; for
the states of Indiana, Kentucky, Alabama, and Mississippi; and for
the states of Michigan, Alaska, Nebraska, and California.
Florida
In
Florida, there is a production tax imposed on oil and natural gas
severed in the state (Fl. Code Chapter 211). Oil is taxed at a rate of 8% of
the gross value at the point of production. Oil produced from wells capable of
producing less than 100 barrels per day is taxed at a reduced rate of 5% at the
point of production. For oil that has escaped from wells, the tax rate is set
up at 12.5%. In addition, oil produced using tertiary methods is taxed based on
the value or market price of a barrel of oil at the wellhead using tiered
formulas, as follows: 1% is levied on the first $60 of gross value; 7% is
levied on the gross value greater than $60 and less than $80; 9% is levied on the
gross value greater than $80.
Natural
gas is taxed at a rate determined annually by the Florida Department of Revenue
and is based on the volume of gas produced and sold or used by a producer
during the month. The tax rate is calculated based on the previous calendar
year’s producer price indices published by the U.S. Bureau of Labor Statistics
and, as of July 1, 2017, the natural gas production tax rate is $0.172 per Mcf.
Tax
exemptions also are provided for oil or gas production used for lease
operations on the lease or unit where produced; gas reinjected into the
producing field; unsold gas vented or flared directly into the atmosphere; oil
and gas produced from new field wells, completed after July 1, 1997, for a
period of 60 months after the completion date; oil and gas produced from new
wells in existing fields as well as from shut-in wells or temporarily abandoned
wells or wellbores, completed after July 1, 1997, for a period of 48 months
after the completion date; and oil and gas produced after July 1, 1997, for a
period of 60 months after the completion date from any horizontal well or any well
having a total measured depth in excess of 15,000 feet.
The
revenue received from the severance tax is collected by the Florida Department
of Revenue and deposited in the Oil and Gas Tax Trust Fund. From the balance of
this fund, a “sufficient amount” must be appropriated to the Chief Financial
Officer for refund purposes while the remainder must be distributed to the
General Revenue Fund of the board of county commissioners of producing counties
and to the Minerals Trust Fund.
New York
In
New York, there is no statewide severance tax on oil and gas production;
however, the New York Real Property Tax law provides for an annual assessment
of oil and gas rights in New York oil and gas producing properties based on the
appropriate unit of production value and determined by the New York Office of
Real Property Tax Services (ORPTS). Oil and gas producing properties include
oil and gas wells, pipelines, reserves, etc.
According
to the ORPTS’ Overview Manual, the unit of production value for
oil is stated as a dollar amount per daily average of oil production or per
barrel of oil produced while the unit of production value for natural gas is
expressed in dollars per 1,000 cubic feet (Mcf) produced or dollar per daily
average. In March 2017, the ORPTS issued a certificate providing for the Final 2017 Oil and Gas Unit of
Production Values.
Tennessee
The
Tennessee Code imposes a severance tax on producers removing oil and gas from
the ground in Tennessee at a rate of 3% of the oil and gas sale price (T.C.A. § 60-1-301). In addition, the Tennessee Code provides that the
revenue received from the severance tax is exclusively for the use and benefit
of the state and local governments and must be distributed as follows: 1/3 of the revenue collected must
be allocated to the county where the wellhead is located while the remaining
2/3 of the revenue must be allocated to the state general fund.
Illinois
The
Illinois Hydraulic Fracturing Tax Act (35 ILCS 450/2-15) levies a statewide severance tax
on oil and natural gas produced on or after July 1, 2013, based on different
rate formulas. During the first 24 months of initial production, the Illinois
legislature provides for a 3% reduced tax rate of the value of the oil and gas
severed within the state. The tax rate thereafter is determined as follows:
-
A tax rate of 3% applies to the value of oil where
the average daily production from the well is less than 25 barrels on a monthly
basis;
-
A tax rate of 4% applies to the value of oil
where the average daily production from the well is 25 or more barrels but less
than 50 barrels on a monthly basis;
-
A rate 5% applies to the value of oil where the
average daily production from the well is 50 or more barrels but less than 100
barrels on a monthly basis;
-
For natural gas, a 6% tax rate applies to the
value of natural gas.
The Illinois Hydraulic Fracturing Tax Act also
provides for a tax exemption where the oil is produced from a well with average
daily production of 15 barrels or less for the first 12 months of initial
production. Tax exemptions also apply to gas injected into the ground for the
purpose of lifting oil, recycling, or repressuring; gas used for fuel in
connection with the operation and development for, or production of, oil or gas
in the production unit where severed; gas lawfully vented or flared; and gas
inadvertently lost on the production unit by reason of leaks, blowouts, or
other accidental losses.
Virginia
The
Virginia Code § 58.1-3712 authorizes counties and cities to
levy a severance tax at a rate that should not exceed 1% of the gross receipts
from the sales of natural gas severed within the county or city. The counties
concerned are Tazewell, Dickenson, Buchanan, and Wise counties as well as the City of Norton, and all impose a 1% tax rate of
the gross receipts from the sale of natural gas severed.
The
money received from the severance tax for each county and city must be paid
into a special fund of such county or city called the Coal and Gas Road Improvement
Fund, and this money must be used for the purpose of improving public roads (§ 58.1-3713).
