Severance Taxes

When were Wyoming's severance taxes first implemented?
Property tax has been collected on oil since 1913 but the first mineral severance taxes were not proposed until as late as 1923 by either political party. The 1923 bill called for a 1% tax on the gross value of crude oil and taxes on other minerals. The tax failed in the legislature and was also put to popular vote as a constitutional amendment that failed to pass on a technicality in 1924. While it got a majority vote, not enough people voted on the measure to get the required 51% majority of all electors.

Another attempt was made in 1949 that would have set aside half the revenue in a fund like the current Permanent Mineral Trust Fund, but the bill died in the Senate. Two more attempts, a 2% tax in 1955 and a 3% tax in 1967 also failed.

The first severance tax passed in the January 1969 legislative session. The bill passed by a narrow margin, creating the first severance tax on minerals in Wyoming at 1%. The tax was raised to 3% in 1974 under the condition that 2% of all severance taxes be placed in the new Permanent Mineral Trust Fund.

Why were they created?
Severance taxes were proposed for several reasons. When the taxes were first raised in 1973 Governor Hathaway required that a part of all severance taxes be set aside in the Permanent Wyoming Mineral Trust Fund to provide for the state when minerals were not profitable to extract and severance taxes became a smaller portion of government revenues. At the time the balance of the state's General Fund was down to $80, and the severance taxes were seen as a vital way to raise state revenues.

What are current severance tax rates?
Severance taxes are remitted monthly and are based on a taxable period's production. As of 1981 the taxable period is the current year. The party responsible for day to day operations is liable for the remittance of severance taxes. The current severance tax rates are listed below.

  Current Severance Tax Rate
Crude Oil 6%
Stripper Oil 4%
Tertiary Oil 4%
Natural Gas 6%
Surface Coal 7%
Underground Coal 3.75%
Trona 4%
Uranium 4%
Renewed Production 1.5%
Other Miscellaneous Minerals 2%

How much Revenue do Severance Taxes provide?
The graph below shoes the importance of severance taxes to the state. It also demonstrates the cyclical nature of severance taxes, with their importance increasing during the boom years between 2001 and 2009, while their revenues were a smaller percentage of tax collections during the 90's when the minerals industry was not as prosperous.

How are they distributed?
$955.4 million in severance tax was collected in FY 2011. The formulas for distributions are laid out in WS 39-14-801.

For the first 13 years 2% was set aside for the PWMTF, and later the requirement was lowered to 1.5% with an additional .5% directed to the state's savings account. In 2005 1% was added to the constitutional requirement and now 2.5% of severance taxes are deposited in the PWMTF. For more information on the PWMTF see the WTA's FAQ here.

The distributions over the 2007-2008 and 2009-2010 bienniums are shown below. It should be noted that the largest distribution goes to the Permanent Wyoming Mineral Trust fund, and that combined, distributions to the Budget Reserve Account, General Fund and PWMTF make up 92% and 91% of distributions for the 2007-2008 and 2009-2010 bienniums, respectively.


Source: LSO Revenue and Expenditure Information for Summer 2010 Presentations


Source: LSO Revenue and Expenditure Information for Summer 2010 Presentations

How have severance taxes changed over time?

Oil
Crude oil taxes rose to 4% in 1974 and peaked at 6% in 1981 where taxes rates remain. Stripper oil taxes peaked at 4% in 1981. Tertiary oil rose in 1973, 1974, and again in 1981 to 6% but later lowered to 4% in 1985. Wildcat oil rose in 1973, 1974 and again in 1981 to peak at 6%. Rates fell to 2% in 1987 and ceased to be taxed in 2000. Collection oil rose in 1973, 1974 and again in 1981 to a peak at 6%, and was lowered to 1.5% in 1985. It ceased to be taxed in 1999. New wells and workover recompletion wells were taxed from 1993 at 2% to 2003 for workover recompletion wells and 2004 for new wells. Renewed oil wells have been taxed at 1.5% since 1995.

Gas
Natural gas, wildcat gas and collection gas's rates all rose to 3% in 1973 and 4% in 1974 and again to 6% in 1981. Collection gas lowered to 1.5% in 1985 and stopped being taxed in 1999 and wildcat gas lowered to 2% in 1987and stopped being taxed in 2000. New well gas was taxed at 2% from 1993 to 2004 and workover recompletion gas was taxed at 2% from 1993 to 2003.

Coal
Surface and underground coal severance taxes rose regularly from 1973 to a peak in 1978 at 10.5%. Underground coal taxes were lowered in 1984 and continued to fall to 3.75% in 1993. Surface coal rates fell from 1987 to 1993 to 7%. Trona rose to a peak in 1976 at 5.5% but was lowered in 1993 to the current level of 4%. Uranium rates rose from 1974 to peak in 1976 at 5.5%. Rates fell starting in 1988 and eventually hit 0% in 1991. Rates varied from 1995 to 2010 and eventually settled at 4%. Severance taxes on miscellaneous minerals were set at 2% in 1974...

What are the current severance tax exemptions?
There are currently several exemptions on mineral severance taxes to encourage development of resources that are otherwise not economically recoverable or other reasons. The Wyoming Department of Revenue has provided the following list of exemptions on minerals, which is also available at: http://revenue.state.wy.us/uploads/2008%20Current%20Mineral%20Tax%20Exemptions.pdf

Oil Stripper production 4%
Oil Tertiary Production 4%
Severance tax on Carbon Dioxide used in tertiary recovery 0%
Renewed Oil & Gas production (for wells shut in before 1995) 2%
Marathon Wind River oil exemption 1.5%
Natural Gas Vented/flared under WOGCC authority 0%
Natural Gas consumed prior to sale for on-lease use 0%
Coal used to process or treat coal from same mine 0%
Severance tax on surface coal $0.60/ton
Severance tax on underground coal $0.30/ton
Sand and gravel for government project produced on government lease 0%

Source: Wyoming Department of Revenue Website
 

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