Who should file tax returns, producers or royalty owners?

DENVER — Colorado lawmakers will look at a bill next week that could alter who pays severance taxes in the state.

Producers and royalty owners now are required to file tax returns with the Colorado Department of Revenue on what they earn from production of oil and gas, coal and other minerals. That means the department handles up to 50,000 such returns each year.

Rep. Randy Fisher, D-Fort Collins, wants to help save the department time, effort and money by requiring only producers to file those returns and requiring them to deduct from royalty checks whatever taxes mineral-rights owners would have paid.

While royalty owners would prefer not to have to file those complicated returns, some are worried producers might charge them too much to cover their part of the tax, said Mary Ellen Denomy, a Battlement Mesa accountant who does many of those returns for royalty owners.

She said the tax is paid on a graduated scale, starting at 2 percent for the first $25,000 earned, the level at which most Colorado royalty owners pay. Producers, however, earn much more from their operations and pay the maximum, 5 percent, on earnings of $300,000 a year or more.

“It’s to benefit the state’s ability to collect the tax … but mineral owners may not want to give up their right to file because they fear they might be charged the 5 percent,” said Denomy, a past president of the Rocky Mountain chapter of the National Association of Royalty Owners.

She said the issue might need to be studied more before any change can be made.

Neal Ray, president of the local chapter, said because there are so many questions about what impact the measure might have not only to royalty owners, but state revenues as well, the bill likely will be changed into a study.

“Colorado has a mess here,” he said.

“Compared to other states that already only require producers to file, Colorado’s rules just don’t work well.”

Ray said there are questions about how producers would deduct the tax from royalty payments, and whether the state would earn more or less revenue because of the change.

He said the Revenue Department is conflicted on that latter question. Severance tax payers are allowed to take a tax credit from their property tax liability, and few royalty owners use those credits.

At the same time, several royalty owners aren’t filing the required severance tax returns. As a result, no one is sure if the change would result in more or less tax revenue to the state.

Revenue Department spokesman Mark Couch said the department hasn’t decided if it will back the measure, saying it still is in the process of determining the bill’s fiscal impact to the state and local governments.


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