Ad Valorem Tax
Ad Valorem Tax On Oil And Gas Properties
To schedule a free consultation, please call (303) 463-8799 or fill out our contact form.
As part of our oil and gas accounting services, we file ad valorem tax reports and remit payments for oil and gas operators.
What Is Ad Valorem Tax
In the oil and gas industry, ad valorem (which means “according to value” in Latin) is a property tax that is based on the value of the property, NOT on production volume.
Ad valorem taxes are local property taxes that are assessed annually by the county or parish where the well is located.
The taxes are based on the value of the oil and gas interests, including:
- producing oil and gas reserves (the estimated market value of the oil and gas still in the ground, but expected to be produced)
- equipment and facilities (e.g. wellheads, tank batteries, pipelines, compressors, and other surface equipment)
Who Pays The Ad Valorem Tax
In most states, the oil and gas operator pays the ad valorem tax bill to the county or parish where the well is located, then withholds each owner’s share (which directly correlates to the proportion of their ownership interest). Ad valorem tax is listed in the check detail of owners’ checks.
How Is Ad Valorem Calculated
Similar to residential or commercial property tax, the county or appraisal district calculates the assessed value of an oil and gas property. The tax rate is set by the local taxing authorities. Ad valorem tax is then calculated by multiplying the assessed value of the oil and gas property by the tax rate.
What Is The Difference Between Ad Valorem Tax And Severance Tax
While ad valorem tax is based on the value of the oil and gas property itself, severance tax is based on the production volume or revenue for the oil and gas that is “severed” from the ground. Some states and/or local municipalities might charge ad valorem tax, severance tax, or both.
About ExTex: Experience, Expertise, Excellence
Ad valorem is an ownership-based tax, and division orders in oil and gas define ownership. If, for some reason, the two do not line up, errors can extend far beyond simple accounting mistakes and lead to legal, financial, and audit problems.
Thanks to our experience and expertise, we can competently process ad valorem tax and all of your regulatory reporting and reports.
We also offer other division order services, including:
We provide outsourced back office admin support for all sizes of oil and gas purchasers and operators, from start-ups to multi-national corporations. We are SOC compliant, and we have a tried-and-true, smooth onboarding process.
For more information about ad valorem tax, or to schedule a free consultation, call (303) 463-8799 or fill out our contact form.
ExTex Division Order Services, LLC is located in the Denver metro area (in Golden, Colorado), and we provide back office outsourcing services for oil and gas companies across the U.S. and Canada.
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“I strongly recommend ExTex to everyone in the oil and gas industry who is responsible for revenue distribution and division order processing.”
Mark B, VP of Finance, Texas
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