Severance Tax

Definition - What does Severance Tax mean?

Severance Tax is the tax imposed on the oil and gas producers or anyone who has working interest or royalty interest in the oil lease or any other mineral lease which involves the extraction of naturally occurring non-renewable resources. These non-renewable resources mostly include crude oil, natural gas, natural gas condensates, coal bed methane, coal or any other minerals which are tradable in the market place.

Petropedia explains Severance Tax

Severance taxes are compulsory taxes and do not consider whether any oil and gas producer realizes net profit on its investment or net loss. One important point to be noted in case of severance taxes is that these taxes are more commonly paid in the cases where the extraction of minerals takes place from privately owned land or where owners own sub surface mineral rights, e.g., in the United States. Where the resources are publicly owned such as in European and Commonwealth Countries, severance tax is not considered to be a tax rather it is referred as “Resource Royalty” that is needed to be paid compulsorily.

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