tax and royalties

I live in WV and I receive yoyalties from PA.  for gas and oil.  Do I pay both states for income tax?

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0i7okn54zwbdoPermalink Reply by 0i7okn54zwbdo on March 8, 2014 at 11:59am

No, you pay income tax in the state in which you live.  Severance tax--not sure what the PA rate is--is deducted at the wellhead, so that would be the only PA tax you'd pay.

Permalink Reply by Velva Mooney on March 8, 2014 at 1:06pm

Thank you Marcus.

Permalink Reply by Doug D on March 13, 2014 at 12:37pm

Velva,  I receive royalties from Ohio and live in WV.  You will have to pay tax in the State the income was generated.  On your WV return you will take a credit for taxes paid in another State. Therefore you will have 2 State returns.

Permalink Reply by Victoria Smith on March 13, 2014 at 8:05am

Pennsylvania is one of the few states that does not have a severance tax.

Permalink Reply by Nancy Mosley on March 8, 2014 at 1:35pm
I live in NC and have income in WV and pay in both states. NC has a higher rate than WV. NC gives me credit for the state tax I pay to WV for WV (royalty) income and I only pay that extra % to NC. Pa. might have different personal income rules.
Permalink Reply by Clinton44 on March 8, 2014 at 4:16pm

Nancy is correct. We have an LLC based in PA and collect royalties paid from PA wells. We have members that live outside the sate of PA and they must pay taxes to PA they can deduct the taxes paid to PA from their state of residency taxes provided they have enough deductions to file an itemized return. Would be best for you to check with a tax expert. Our accountant files quarterly returns for the PA income taxes. Hope this information is helpful. 

Permalink Reply by Anonymous on March 9, 2014 at 1:26am

stupid question here.   If I live where my gas is produced do I still pay severance tax?

Permalink Reply by Kathleen on March 9, 2014 at 2:49am
Depends on the wording of your lease. Many new leases have the oil and gas co., sharing these costs, older leases have the mineral owner paying the tax on all their minerals that come out of the well head.
Permalink Reply by Dott on March 9, 2014 at 4:04pm

Clinton 44,

I see you have an LLC. I  have often wondered if that would be a good thing for our family of heirs. We have 100 acres between 4 of us.  I know there are benefits but it seemed more of a hassle than anything else for just our 100. Can you shed some light? Thank you

Permalink Reply by Clinton44 on March 9, 2014 at 4:23pm

We formed the LLC because their are 12 of us some are related to each other and some are not. We are all members of the same hunting camp. We formed the LLC and had the mineral rights appraised before purchasing the mineral rights from the camp. One of the main reasons we formed the LLC and purchased the mineral rights is because years ago our camp was granted 501C tax exempt status from the IRS and this tax exempt status prohibits the distrbution of royalties to individual members. It was the easiest way to do it for us, because once you are declared 501C there is no way to disolve that status other than giving the assets to another 501C with a similar purpose.

Another benefit to the LLC and its operating agreement is that it sets forth rules for operations, distributing royaties etc. and how transfers of assets are to be handled when a member passes away. Our attorney of course helped us with the whole process and advised that the LLC operating agreement can be changed if necessary if all members agree on the changes.

I guess your best bet would be to speak with an attorney to se if the LLC would be benefit to you and your heirs. 

Permalink Reply by Dott on March 10, 2014 at 5:28am

Thank you Clinton 44 sounds like it was a perfect choice for your group

Permalink Reply by Doug D on March 13, 2014 at 1:04pm

There are some advantages to forming an LLC.  First of course is the protection from personal liability.  Second is if you want to gift interest in the LLC you can take advantage of large discounts such as Marketability discount and Minority interest discount.  After these discounts you will be able to gift larger interests to family members without effecting you lifetime credit.  If it is just 4 with 100 acres I could not see any advantage.  We have 3 for 226 acres and are just gifting interests to children over the years and what we don't gift they will get a step up in basis.  The reason for gifting any interest is to take advantage of their lower tax rates and the family as a whole will save taxes. 

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