Taxes on Mineral Rights

 I read about taxing mineral rights in one of the forums and researched it. I found the article below in the Carroll County Freepressstandard. Can anyone answer some questions about this for me?

1. If I only own the mineral rights and not the surface rights will I be taxed with or without a lease in place?

2. If I have a lease without being in a unit or any production going on, will I still be taxed?

3. Does anyone know what the tax rate will be?

I guess I really know the answer. I was told awhile ago that mineral rights are considered property.  So I guess I should  have to pay property tax on them. But I sure don't like it. Especially when I may never see a royalty check. Some people who only own mineral rights may rethink selling them. And being that from the sound of it they are behind in this the tax bill could go back a few years.

FREEPRESSSTANDARD.COM

Taxing mineral rights separated from the surface land

Guest Commentary by Carroll County Auditor E. Leroy VanHorne

Here comes the taxman again.

Every time there is a mention regarding the county auditor we all think, Oh, now what is he going to tax and why?

Well, the auditor is going to be taxing those gas, oil and coal rights that have been separated from the land.

Should a person sign a lease agreement for any of the minerals under his property, he has not really sold anything except the right for someone to explore for those minerals. He has not sold anything tangible. We are all assured that there is gas, oil and coal under the property in Carroll County, and we are told that there is a lot of it. If and when those minerals are removed, there will a severance tax charged by the State of Ohio and the mineral owner will be charged a tax on the income derived by the royalties’ paid on those minerals.

If by chance the property owner separates the rights to the minerals, separate from the land and retains the minerals right, then we are talking about a whole different story. When a property owner does either of these things, he has created a separate mineral interest and the new owner will be required to pay a real estate tax on those minerals, the value of which is based on the majority of the sale prices. This is not a new tax. It has been in law in Ohio for many years.

None of us, as taxpayers, like paying more taxes than we already do. But the one thing that is most upsetting is when we find that there are those that should but are not paying their share of the taxes. For many years mineral rights have been reserved when the surface land has been sold. Just a couple of years ago the value of those mineral rights, at best, were worth no more than a few dollars and the tax minimal.

With the mineral rights now selling for as much as $5,000 an acre, the owners are now wanting to make their interest in those minerals known and recorded. Many of those have not paid a penny of tax for years. Well, that is going to change.

If you own mineral rights that are separated from surface property, you may be receiving a real estate tax bill that you have never received before. A bill will be generated for those rights and mailed within the next year or two.

What does this mean for those who own the land and the minerals rights? Absolutely nothing. There will be no increase in value and no increase in taxes if the land and minerals are not separated. However, when those that have separated mineral rights get taxed, those owning the land and paying taxes now will begin to see a decrease in their taxes. Why? Because all voted levies, when first enacted, are locked in at the amount of revenue generated that first year. As long as the original levy is not replaced it will continue to generate that same amount, regardless how many years it is in effect. When those that have separated mineral rights begin paying their share of the taxes, they will be paying a portion of that tax and the rest will pay less.

This process will take time. However, those parcels where the minerals have been separated will be addressed as we discover the legal owners. Those on which the tax is not paid, will be classified as delinquent and eventually be advertised for foreclosure and sold at auction or tax sale.

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Replies to This Discussion

Permalink Reply by Mark McGrail on February 2, 2014 at 7:09pm

Dott,

You should only be charged tax on the mineral estate when there is production and you are receiving royalties. There is no other way to determine the value of the mineral estate of a property without royalties. I f you are being charged a property tax without royalties you should challenge the tax.

Permalink Reply by Steven A Joliat on February 3, 2014 at 10:37am

The auditor suggests that he will be using the standard methods of real estate appraisal to value mineral properties.  One would assume that the owner will have the same right of appeal of the assessed valuation as any owner of real estate would have in challenging their property assessment.  This is where it gets strange.  In a normal appeal, you can study several houses their characteristics are easily observable and readily documented.  Many average people can successfully handle these appeals on their own. 

Valuation of a mineral property that has no wells or production history and may have multiple pay zones is much more problematic and speculative.  Local variations in geology can cause adjacent parcels to have wildly different values.  I foresee a field day for lawyers, consultants, and much litigation.

Permalink Reply by Dott on February 3, 2014 at 12:29pm

I am thinking of contacting the Tax office just so nothing falls through the cracks because as the article states delinquent owners will be foreclosed upon. The minerals in question have been inherited and divided between many and I can see this being a mess. Does anyone know which office I should contact?

Permalink Reply by Mark McGrail on February 3, 2014 at 3:28pm

Dott,

County Treasurer.

Permalink Reply by KB on February 3, 2014 at 2:51pm

Interesting.  So while they are at it.  Why doesn't the tax man start charging real estate tax on the coal that was severed years ago.  Why should someone pay tax on oil and gas and not on coal?  Double standard?

Permalink Reply by INVICTUS on February 3, 2014 at 6:42pm

They are supposed to start charging Rosebud Mining for the severed coal that they bought from Consol.   Remember the coal mine that's supposed to go in below Carrollton?  9500 acre permit working its way through ODNR DMRM   Permit 10417

That's 9500 acres that Rosebud had better get a bill for!

All of that should be online on the auditors site.

Most of this has been severed at least since the 1950's1960's ( and before when owned by Consolidated coal, Hannah coal before even that)  but no one ever sent anyone a bill for the severed coal estates.

That as an example of how to bill for the oil that is severed from the surface.

The pricing of these two "estates" will really be interesting.

Permalink Reply by RAYMOND bAUMAN on February 6, 2014 at 12:13pm

iT USED TTO BE THE PRODUCER FILED A FORM 9 AND COUNTY AUDITORS AGREEDED ON A VALUDATION BASED UPON PRODUCTION AND THE PRODUCER RECEIVED A TAX BILL FOR ALL PRODUCTION AND COULD BUT USALLY DID NOT DEDUCT IT FROM ROYALTIES.  When the legislature  in Ohio passes the CAT tax this requirement was eliminated as personal property made up the most of the valuation of the wells that was taxed and it also was based on production.  Will some correct me if I am incorrect.  The form may still be required but the tax on the producer is paid on the CAT tax level.

Permalink Reply by Ireland on February 7, 2014 at 5:40pm

I own numerous tracts of land that I only own mineral rights, no surface rights (also no lease in place or wells to receive royalties). Clearfield County, PA for decades have been taxing them. Not sure how they figure it out because some larger tracts the taxes are less than smaller ones.

Permalink Reply by Victoria Smith on February 9, 2014 at 9:16pm

I would definitely appeal this to the tax board.  This taxing of unproduced oil and gas is not the norm in PA.  I would base my appeal on the mineral having no value until removed from the ground. 

Permalink Reply by Janice L. Hancharick on February 10, 2014 at 11:01am

Back-in-the-day mineral rights were taxed across PA regardless if they were in production or not,.  However across the state's northern border, the tax was very small for acreage not leased.  Within the past decade or a bit longer, this tax was dropped.  The folly of establishing a value on the invisible was realized.

Counties should keep records of these old taxes though because for many this is the only record proving what "rights" go with what properties for future sales and/or leasing.  Sadly I believe some of the old records have disappeared.

Permalink Reply by Oliver Perry on February 10, 2014 at 5:18pm

Coal rights are taxed in Clearfield & Butler Counties if they are severed from the surface rights. FYI

Permalink Reply by brat on February 13, 2014 at 12:52pm

Although I am in Harrison county, Ohio,  a number of years ago, that county auditor's office started raising my property taxes.  They doubled one year, then a few years later another double, then a few years later another double, then a few years later yet ..another double!!!  When I called to complain, I was told  " well, you are in Harrison county coal country!!!"   Strongly suggesting I had this large reserve of coal under my land. (When by the way, lots of it had already been stripped!)

 

  When I asked, what if I don't have any coal under my property, they just shrugged off my question...tough love I guess.  This was years before this gas boom.  I am wondering now if I'll get a hugh tax increase even tho I'm not leased to drill.

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