Alabama — Severance Tax on Oil & Gas Royalties
Alabama actually levies two stacked production taxes on oil and gas. The standard severance tax is 8% of gross value, and a separate Oil and Gas Privilege Tax adds 2% — so the all-in effective rate on most Alabama production is 10% before reductions. Reduced rates apply to offshore Mobile Bay production and certain enhanced-recovery wells.
- Governing statute
- Ala. Code § 40-20-2 (Severance) + § 40-20-21 (Privilege)
- Administered by
- Alabama Department of Revenue
Key points for Alabama severance tax on oil & gas royalties
- Standard severance: 8% of gross value (Ala. Code § 40-20-2).
- Privilege tax: additional 2% of gross value (Ala. Code § 40-20-21) — stacks with severance.
- Reduced rates for offshore Mobile Bay production and qualifying enhanced-recovery wells.
- AL personal income tax: top rate 5%; royalty income reported on Schedule E for non-residents on AL-source income.
How this affects selling your Alabama mineral interest
Pointer underwrites Alabama interests on a net-of-severance basis with the stacked privilege-tax rate priced in.
Arkansas — Severance Tax on Oil & Gas Royalties
Arkansas severance tax on natural gas is 5% of market value, with a substantially reduced rate (1.5%) on new high-cost (typically horizontal) wells for the first 36 months.
- Governing statute
- Ark. Code § 26-58-101
- Administered by
- Arkansas Department of Finance & Administration
Key points for Arkansas severance tax on oil & gas royalties
- Standard gas severance: 5% of market value.
- High-cost gas reduced rate: 1.5% for first 36 months on qualifying horizontal wells.
- Oil severance: 4–5% of market value depending on field characteristics.
- AR personal income tax: graduated, top rate 4.4%.
How this affects selling your Arkansas mineral interest
Pointer underwrites AR interests on a net-of-severance basis.
California — Severance Tax on Oil & Gas Royalties
California is unusual: it does not have a state severance tax on oil and gas production. CalGEM levies a regulatory assessment instead, used to fund state oil-and-gas oversight.
- Governing statute
- No state severance tax. Cal. Pub. Res. Code § 3403 imposes an oil & gas regulatory assessment.
- Administered by
- CalGEM
Key points for California severance tax on oil & gas royalties
- No state severance tax — 0% bite to royalty owner via that mechanism.
- CalGEM annual assessment is paid by operator on a per-barrel basis (about $0.15–$0.30/bbl historically) — minor compared to TX/OK rates.
- CA personal income tax: graduated, top rate 13.3% — among the highest in the nation.
- Royalty owners pay full California income tax on royalty income, which substantially offsets the no-severance benefit.
How this affects selling your California mineral interest
California's no-severance, high-income-tax structure produces a different after-tax math than other producing states. Pointer underwrites CA interests on a net-of-CA-state-income-tax basis.
Colorado — Severance Tax on Oil & Gas Royalties
Colorado severance tax is graduated by gross income, ranging from 2% to 5%. Combined with the ad valorem credit and the impact-fee structure, the effective rate is in the middle of the major-state range.
- Governing statute
- C.R.S. § 39-29-101 et seq.
- Administered by
- Colorado Department of Revenue
Key points for Colorado severance tax on oil & gas royalties
- Severance tax: graduated 2% to 5% of gross income (C.R.S. § 39-29-105).
- Ad valorem credit: operators receive a credit against severance for property taxes paid — meaningful in active counties.
- No oil-specific extraction tax beyond the standard severance.
- CO personal income tax: 4.4% flat rate — residents and non-residents file on CO-source royalty income.
- Royalty owners in stripper-well wells receive an exemption from severance tax on stripper-qualifying production.
How this affects selling your Colorado mineral interest
Pointer underwrites CO interests on a net-of-severance basis. The graduated structure means the effective rate varies meaningfully by lease economics; we calculate it explicitly during underwriting.
Illinois — Severance Tax on Oil & Gas Royalties
Illinois is one of a small group of producing states with no state severance tax on oil and gas. Royalty income is subject to standard Illinois personal income tax.
- Governing statute
- Illinois has no state severance tax.
- Administered by
- Illinois Department of Revenue (income tax only)
Key points for Illinois severance tax on oil & gas royalties
- No severance tax — 0% bite to royalty owner via that mechanism.
- IL personal income tax: 4.95% flat rate.
- Royalty owners file IL returns on IL-source royalty income.
- Property tax on producing minerals varies by county.
How this affects selling your Illinois mineral interest
Illinois's no-severance structure means royalty owners keep more of the gross check than in TX/OK/ND. Pointer prices IL interests with this favorable treatment built in.
Kansas — Severance Tax on Oil & Gas Royalties
Kansas does not have a true severance tax. Instead it imposes a "conservation fee" on production (administered by the KCC) and a "mineral severance tax" of 8% with several exemptions that effectively reduce the rate for many wells.
- Governing statute
- K.S.A. § 79-4217
- Administered by
- Kansas Department of Revenue
Key points for Kansas severance tax on oil & gas royalties
- Headline severance tax: 8% of gross value (K.S.A. § 79-4217).
- Major exemptions: oil/gas production from the first 24 months of horizontal wells, stripper wells, very-low-volume wells, and incremental production from secondary recovery.
- KCC conservation fee: roughly 0.05% — minor.
- Effective rate after exemptions is often dramatically lower than 8% — many Hugoton wells qualify for stripper exemptions.
- KS personal income tax: graduated, top rate 5.7%.
How this affects selling your Kansas mineral interest
Kansas's effective severance burden after exemptions is typically much lower than the headline 8% suggests. Pointer underwrites KS interests using actual operator-reported tax data, not the headline rate.
Louisiana — Severance Tax on Oil & Gas Royalties
Louisiana levies severance tax on oil at $0.125 per barrel (effectively a per-unit charge) and on gas at a graduated value-based rate. The combined burden is in the middle of the major-state range.
- Governing statute
- La. R.S. § 47:631 (Oil) and § 47:633 (Gas)
- Administered by
- Louisiana Department of Revenue
Key points for Louisiana severance tax on oil & gas royalties
- Oil severance: $0.125 per barrel (NOT a percentage).
- Gas severance: graduated, currently around $0.122 per MCF (price-indexed annually).
- Stripper-well exemptions reduce or eliminate severance for low-producing wells.
- LA personal income tax: graduated, top rate 4.25%.
- Combined effective oil burden at $70 oil: roughly 0.18% (very low compared to TX/NM/ND); gas burden runs higher in percentage terms.
How this affects selling your Louisiana mineral interest
Louisiana's per-unit oil severance is unusually low at current oil prices. Pointer prices LA oil interests with this favorable tax treatment built in.
Michigan — Severance Tax on Oil & Gas Royalties
Michigan severance tax on oil and gas is 5% on oil and 5% on gas, with reductions for stripper wells.
- Governing statute
- MCL § 205.301
- Administered by
- Michigan Department of Treasury
Key points for Michigan severance tax on oil & gas royalties
- Oil severance: 5% of value (with stripper reductions).
- Gas severance: 5% of value.
- Stripper-well exemptions widely applicable to Antrim Shale wells given low per-well rates.
- MI personal income tax: 4.25% flat rate.
How this affects selling your Michigan mineral interest
Pointer underwrites Michigan interests on a net-of-severance basis with stripper exemptions priced in where applicable.
Mississippi — Severance Tax on Oil & Gas Royalties
Mississippi severance tax is 6% on oil and gas, with reductions for stripper wells and enhanced recovery.
- Governing statute
- Miss. Code § 27-25-503
- Administered by
- Mississippi Department of Revenue
Key points for Mississippi severance tax on oil & gas royalties
- Severance tax: 6% of gross value (oil and gas).
- Stripper-well exemptions reduce the rate on qualifying low-volume wells.
- MS personal income tax: graduated, top rate 5%.
- Royalty owners file MS returns on MS-source royalty income.
How this affects selling your Mississippi mineral interest
Pointer underwrites MS interests on a net-of-severance basis.
Montana — Severance Tax on Oil & Gas Royalties
Montana has a graduated oil and gas production tax that varies by well type and price. The combined effective rate for most current-production Bakken wells is around 9%.
- Governing statute
- Mont. Code Ann. § 15-36-304
- Administered by
- Montana Department of Revenue
Key points for Montana severance tax on oil & gas royalties
- Production tax for primary recovery oil: 9.0% on stripper wells, 0.5% during the first 12 months, then 9.0% — but with reduced rates for low-price periods.
- Production tax for natural gas: graduated, typically 9.0%.
- Working interests bear most of the tax; royalty owners see it deducted on monthly checks.
- MT personal income tax: top rate 5.9%.
- Royalty owners file MT returns on MT-source royalty income.
How this affects selling your Montana mineral interest
Pointer underwrites MT interests on a net-of-tax basis. The 9% combined production-tax burden is in line with peer Bakken states.
New Mexico — Severance Tax on Oil & Gas Royalties
New Mexico imposes a severance tax plus several smaller dedicated levies on oil and gas production. Combined effective rate is among the highest of major producing states.
- Governing statute
- NMSA Chapter 7, Article 29 (Oil & Gas Severance Tax)
- Administered by
- New Mexico Taxation and Revenue Department
Key points for New Mexico severance tax on oil & gas royalties
- Oil & gas severance tax: 3.75% of taxable value (NMSA § 7-29-4).
- Conservation tax: 0.19% of taxable value, dedicated to the OCD.
- Emergency school tax: 3.15% on oil, 4% on gas — by far the largest piece of the combined burden.
- Ad valorem (property) production tax varies by county, typically 1.5–3% of value.
- Combined effective rate for an oil royalty owner in the Permian core is typically 8–9% off gross production value.
How this affects selling your New Mexico mineral interest
New Mexico's combined severance-equivalent burden is meaningful — roughly 200 bps higher than Texas at comparable prices. Pointer underwrites NM interests on a net-of-tax basis so the price reflects what your check actually shows.
North Dakota — Severance Tax on Oil & Gas Royalties
North Dakota levies a 5% gross production tax plus a 5% oil extraction tax — combined 10% statutory burden, with conditional reductions tied to oil price thresholds.
- Governing statute
- NDCC Chapters 57-51 (Production Tax) and 57-51.1 (Extraction Tax)
- Administered by
- ND Office of State Tax Commissioner
Key points for North Dakota severance tax on oil & gas royalties
- Gross production tax: 5% of value (NDCC § 57-51-02).
- Oil extraction tax: 5% of value (NDCC § 57-51.1-02), with reductions on stripper wells and during low-price periods.
- Combined effective oil burden: ~10% off gross value at most prices.
- Gas: production tax only (no extraction tax) — 5% off gross.
- ND has a state income tax but at a low top rate (~2.9%) — out-of-state royalty owners file ND non-resident returns on ND-source royalty income.
How this affects selling your North Dakota mineral interest
Pointer underwrites ND interests on a net-of-tax basis. The combined ~10% statutory rate is one of the higher oil burdens nationally and we account for it explicitly in pricing.
Ohio — Severance Tax on Oil & Gas Royalties
Ohio levies a relatively low severance tax on oil and gas production — among the lowest in major producing states. Several attempts to raise the rate on unconventional production have failed in the legislature.
- Governing statute
- Ohio Rev. Code § 5749.02
- Administered by
- Ohio Department of Taxation
Key points for Ohio severance tax on oil & gas royalties
- Oil severance: $0.10 per barrel (NOT a percentage).
- Gas severance: $0.025 per MCF (NOT a percentage).
- These per-unit rates are dramatically lower than the percentage-of-value structures used by TX/OK/NM/ND/WV.
- No statewide ad valorem (property) tax on producing minerals (most Ohio counties do not assess minerals separately from surface).
- OH personal income tax: top rate 3.5% on income over $115,300 — residents and non-residents file on OH-source royalty.
How this affects selling your Ohio mineral interest
Ohio's low severance burden means royalty owners keep more of the gross check than in higher-severance states. Pointer prices OH interests with this favorable tax treatment built in.
Oklahoma — Severance Tax on Oil & Gas Royalties
Oklahoma uses a "gross production tax" on the value of oil and gas extracted, in lieu of ad valorem (property) tax on producing minerals. The operator remits; royalty owners see the tax deducted on the monthly check.
- Governing statute
- Okla. Stat. tit. 68 § 1001 (Gross Production Tax)
- Administered by
- Oklahoma Tax Commission
Key points for Oklahoma severance tax on oil & gas royalties
- Standard rate: 7% of gross value for both oil and gas (Okla. Stat. tit. 68 § 1001).
- Reduced rate of 2% for the first 36 months on horizontally drilled wells spudded on or after July 2015 — your check is bigger during the first three years of a horizontal well's life.
- Stripper-well exemption: 4% rate on wells averaging less than 25 BOPD or 250 MCFD over the prior 12 months.
- Oklahoma has an oil & gas excise (additional) tax of 0.085–0.095% to fund OCC operations and a small reclamation fee.
- Royalty income is also subject to Oklahoma personal income tax (top rate 4.75%); residents and non-residents alike file an Oklahoma return on Oklahoma-source royalty income.
How this affects selling your Oklahoma mineral interest
Pointer underwrites Oklahoma royalty interests on a net-of-severance-tax basis. The 36-month horizontal reduction window is a meaningful pricing factor on recent wells and we account for it explicitly.
Pennsylvania — Severance Tax on Oil & Gas Royalties
Pennsylvania is the only major Marcellus state without a severance tax on natural gas production. Instead, the 2012 Act 13 created an "unconventional gas well fee" (impact fee) paid by operators per well based on natural gas price brackets.
- Governing statute
- Pennsylvania has no severance tax. Act 13 of 2012 imposes an "impact fee" on unconventional wells.
- Administered by
- PA Public Utility Commission (impact fee distribution)
Key points for Pennsylvania severance tax on oil & gas royalties
- No severance tax on the value of PA natural gas production — 0% bite to the royalty owner via that mechanism.
- Impact fee (Act 13) is paid by the operator per unconventional well, sliding-scale based on gas price ($40,000–$60,000 in early years, declining over the well's life).
- Royalty owners do NOT see the impact fee deducted on the check — it is an operator-side expense, not a per-MCF tax.
- PA has a state personal income tax (3.07% flat); residents pay state income tax on royalty income. Non-residents file PA non-resident returns for PA-source royalty.
- No state inheritance tax was eliminated; see probate page above for the 4.5–15% inheritance tax that does apply at the estate level.
How this affects selling your Pennsylvania mineral interest
PA's no-severance-tax structure means royalty owners receive a higher share of gross than ND or NM owners. Pointer underwrites PA royalties on a net-of-PA-state-income-tax basis to match the actual after-tax check.
Texas — Severance Tax on Oil & Gas Royalties
Texas levies a severance tax on the market value of oil and gas produced in the state. The operator remits the tax to the Comptroller; the royalty owner sees the tax deducted on the monthly check or rolled into the price differential, depending on lease terms.
- Governing statute
- Tex. Tax Code Chapters 201 (Gas) and 202 (Oil)
- Administered by
- Texas Comptroller of Public Accounts
Key points for Texas severance tax on oil & gas royalties
- Oil severance: 4.6% of market value (Tex. Tax Code § 202.052).
- Gas severance: 7.5% of market value (Tex. Tax Code § 201.052).
- Stripper-well exemptions and high-cost-gas reductions can lower the effective rate on qualifying wells; these flow through to royalty owners on those wells.
- Texas does not have a state income tax — there is no separate state-level tax on the royalty owner's receipt of the check.
- Severance tax does not apply to a one-time sale of the underlying mineral or royalty interest — that is a federal capital-gains transaction (with state-tax-free treatment in Texas because there is no state income tax).
How this affects selling your Texas mineral interest
Severance tax affects monthly cash flow but not the lump-sum sale price of the interest itself. Pointer underwrites Texas interests on a net-of-severance-tax basis to match what your check actually shows.
Utah — Severance Tax on Oil & Gas Royalties
Utah severance tax is 3% of value on the first $13/MCF or $13/bbl, then 5% above. Among the lower headline rates for major producing states.
- Governing statute
- Utah Code § 59-5-101 et seq.
- Administered by
- Utah State Tax Commission
Key points for Utah severance tax on oil & gas royalties
- Tier 1: 3% of value (up to threshold price).
- Tier 2: 5% of value above threshold.
- Stripper-well exemption available.
- UT personal income tax: 4.55% flat rate.
- Combined effective burden generally below 6%.
How this affects selling your Utah mineral interest
Utah's moderate severance burden supports favorable royalty-owner economics.
West Virginia — Severance Tax on Oil & Gas Royalties
West Virginia levies a 5% severance tax on the gross value of oil and gas production. Several smaller dedicated levies bring the combined effective rate to about 5.6%.
- Governing statute
- W. Va. Code § 11-13A (Severance Tax on Natural Gas, Oil, Coal)
- Administered by
- WV State Tax Department
Key points for West Virginia severance tax on oil & gas royalties
- Severance tax: 5% of gross value (W. Va. Code § 11-13A-3).
- Workers compensation severance: 0.55%.
- Oil & gas conservation fund fee: 0.06%.
- Total combined: approximately 5.6% off gross.
- Royalty income is also subject to WV personal income tax (top rate 6.5% on income over $60,000) — residents and non-residents alike file WV returns on WV-source royalty.
How this affects selling your West Virginia mineral interest
Pointer underwrites WV royalties on a net-of-severance basis. The combined ~5.6% rate is in the middle of the major-producing-state range.
Wyoming — Severance Tax on Oil & Gas Royalties
Wyoming has a 6% severance tax on oil and gas production, plus county ad valorem property tax on producing minerals. Combined effective rate is meaningful — Wyoming is one of the few states without a personal income tax, partly funded by these production taxes.
- Governing statute
- Wyo. Stat. § 39-14-201 (Oil & Gas)
- Administered by
- Wyoming Department of Revenue
Key points for Wyoming severance tax on oil & gas royalties
- Severance tax: 6% of gross value (oil and gas).
- Ad valorem (property) production tax: varies by county, typically 6–8% — significantly higher than other states' property tax bites.
- Combined effective rate: typically 12–14% off gross value, one of the higher major-state burdens.
- No state personal income tax — royalty owners pay no Wyoming tax on receipt of the check itself.
- The high combined production tax is a deliberate Wyoming policy: production funds state government in lieu of income tax.
How this affects selling your Wyoming mineral interest
Pointer underwrites WY interests on a net-of-combined-tax basis. The high ad valorem load is the largest single difference vs comparable Colorado interests, and we price it explicitly.