< Back to Blog
  • Understanding Royalty Taxes – Part 6 County Ad Valorem!

    June 28, 2019

     

    One last tax that anyone selling royalties should know about is the county ad valorem tax, a tax that applies to mineral ownership only and not to the income earned when you sell your royalties.

     

    It is comparable to the oil and gas severance tax applied to royalties except it is levied against the real mineral property only and collected by the county, not the state, in which a well is producing.

    How Does The County Ad Valorem Tax Work?

    The county ad valorem tax that is applicable to anyone who owns mineral interests in somewhat like the real estate tax that must be paid every year on a house, building, or parcel of land.

     

    Because mineral interests are considered real property, anyone with ownership of a producing interest must pay a yearly county tax on these earnings, although royalties earned from the interest are not affected by this tax.

    How is the Ad Valorem Tax Calculated?

    The county ad valorem tax that mineral interest owners must pay each year is levied based on the fair market value of the producing mineral interest.

     

    In this case, fair market value is the price that a seller would accept and a buyer would pay to purchase that real property interest on any given day.

     

    Since it is based on market value which fluctuates frequently, the ad valorem tax is not relative to income earned when you sell your royalties.

     

    This means the amount you pay may be different every year depending on how the value of your mineral interest changes.

    How is the Fair Market Value Determined?

    The market value of the mineral interest from a producing well is calculated using a formula based on the estimated recoverable share of the well and how much it is expected to produce is then discounted to reflect the present worth of that product.

     

    Other factors used to determine present worth of the estimated product from a well include operating expenses, the current price of oil and gas, and discount rate.

     

    Those selling royalties end up responsible for a prorata amount of the determined figure according to the degree of ownership of the interest.

    Making Sense of the Ad Valorem Tax

    The county ad valorem tax can be complicated as it applies to the actual ownership of a mineral interest as well as the assessment and value of the interest, not the income earned selling royalties generated by that interest.

     

    Additionally, it only applies when a mineral interest is actually producing, such as when you are selling your royalties.

     

    Still, you may not agree on the assessed value assigned to your interest, so it is critical to keep good records and understand how this tax is calculated.

     

    Owners in disagreement with the assessment of their property always have the option to team up with an experienced royalties professional who can help them determine the true fair market value of their interest and what the ad valorem tax should be.

     

    If this article has been helpful and you missed any or all of the previous articles in this series, be sure to read the other articles in this 6 Part series: Part 1 Oil Severance, Part 2 Depletion Allowance, Part 3 1031 Exchange, or Part 4 Gas Severance, and Part 5 Income!

     

    Questions About Royalties And Taxes In The Permian Basin Texas?

    Permico Royalties Can Help When Selling Royalties!

    Call Us At (432) 242-7335!

Topics

  • Gas and Oil Royalty For Sale in Texas
  • Gas Rights For Sale in West Texas
  • Gas Rights in Texas
  • Gas Rights in the Permian Basin Texas
  • Gas Rights in West Texas
  • Gas Royalties in Texas
  • Mineral Rights For Sale in New Mexico
  • Mineral Rights For Sale in Texas
  • Mineral Rights For Sale in the Permian Basin Texas
  • Mineral Rights For Sale in the United States
  • Mineral Rights For Sale in West Texas
  • Mineral Rights in Texas
  • Mineral Rights in The Permian Basin
  • Mineral Rights in the Permian Basin Texas
  • Mineral Rights in The United States
  • Mineral Rights in West Texas
  • Oil and Gas Royalties For Sale in Texas
  • Oil and Gas Royalties For Sale in the Permian Basin Texas
  • Oil and Gas Royalties For Sale in the United States
  • Oil and Gas Royalties For Sale in West Texas
  • Oil and Gas Royalties in Texas
  • Oil and Gas Royalties in the Permian Basin Texas
  • Oil and Gas Royalties in the United States
  • Oil and Gas Royalties in West Texas
  • Oil Rights For Sale in Texas
  • Oil Rights For Sale in the Permian Basin Texas
  • Oil Rights For Sale in West Texas
  • Oil Rights in New Mexico
  • Oil Rights in Texas
  • Oil Rights in the Permian Basin Texas
  • Oil Rights in the United States
  • Oil Rights in West Texas
  • Oil Royalties For Sale in Texas
  • Oil Royalties For Sale in West Texas
  • Oil Royalties in Texas
  • Oil Royalties in the Permian Basin Texas
  • Oil Royalties in West Texas
  • Royalties For Sale in the Permian Basin Texas
  • Royalties For Sale in the United States
  • Royalties For Sale in West Texas
  • Royalties in Texas
  • Royalties in The Permian Basin
  • Royalties in the Permian Basin Texas
  • Royalties in The United States
  • Royalties in West Texas
  • Royalty For Sale in Texas
  • Sale of Gas Rights in Texas
  • Sale of Gas Rights in the Permian Basin Texas
  • Sale of Gas Rights in the United States
  • Sale of Gas Rights in West Texas
  • Sale of Mineral Rights in New Mexico
  • Sale of Mineral Rights in Texas
  • Sale of Mineral Rights in the Permian Basin Texas
  • Sale of Mineral Rights in West Texas
  • Sale of Oil Rights in Texas
  • Sale of Oil Rights in the Permian Basin Texas
  • Sale of Oil Rights in the United States
  • Sale of Oil Rights in West Texas
  • Sell Gas and Oil Royalties in Texas
  • Sell Gas and Oil Royalties in the Permian Basin Texas
  • Sell Gas Royalties in Texas
  • Sell Mineral Rights in the Permian Basin Texas
  • Sell Mineral Rights in West Texas
  • Sell My Mineral Rights in Texas
  • Sell My Oil and Gas Royalties in Texas
  • Sell Oil and Gas Royalties in Texas
  • Sell Oil and Gas Royalties in The Permian Basin
  • Sell Oil and Gas Royalties in The United States
  • Sell Oil and Gas Royalties in West Texas
  • Sell Oil Rights in the Permian Basin Texas
  • Sell Oil Royalties in Texas
  • Sell Oil Royalty in Texas
  • Sell Your Mineral Rights in New Mexico
  • Sell Your Mineral Rights in Texas
  • Sell Your Mineral Rights in the Permian Basin Texas
  • Sell Your Mineral Rights in West Texas
  • Selling Gas Rights in Texas
  • Selling Gas Rights in West Texas
  • Selling Mineral Rights in Texas
  • Selling Mineral Rights in The Permian Basin
  • Selling Mineral Rights in the Permian Basin Texas
  • Selling Mineral Rights in The United States
  • Selling Mineral Rights in West Texas
  • Selling Minerals in West Texas
  • Selling Oil Rights in New Mexico
  • Selling Oil Rights in Texas
  • Selling Oil Rights in the Permian Basin Texas
  • Selling Oil Rights in West Texas
  • Selling Oil Royalties in New Mexico
  • Selling Oil Royalties in Texas
  • Selling Oil Royalties in the Permian Basin Texas
  • Selling Oil Royalties in West Texas
  • Selling Royalties in Texas
  • Selling Royalties in the Permian Basin Texas
  • Selling Royalties in the United States
  • Selling Royalties in West Texas
  • Selling Your Mineral Rights in Texas
  • Selling Your Mineral Rights in the Permian Basin Texas
  • Selling Your Mineral Rights in West Texas