Colo. Code Regs. 39-29-111

Current through Register Vol. 47, No. 23, December 10, 2024

Rule 39-29-111 - Oil and Gas Severance Tax Withholding

Basis and Purpose. The statutory bases for this rule are sections 39-21-101(3), 39-21-112(1), 39-29-101(1), 39-29-111, 39-29-112, and 39-29-115 (1.5), C.R.S. The purpose of this rule is to clarify requirements for withholding severance tax from gross income from oil and gas, to establish reporting requirements, and to clarify which taxpayer may claim credit for taxes withheld.

(1) Every producer or purchaser who disburses funds owed to any person owning a working interest, a royalty interest, a production payment, or any other interest in any oil or gas produced in Colorado shall withhold one percent (1%) of the gross income from such payments; except, no withholding shall be taken from payments for:

(a) Interests held by the United States of America;

(b) Interests held by the State of Colorado or any political subdivisions of the state of Colorado;

(c) Interests held by the Southern Ute Indian Tribe or the Mountain Ute Indian Tribe; or,

(d) On or after January 1, 2000, any production exempt from the tax imposed by section 39-29-105(1)(a) or (b), C.R.S.

(2) Producers and purchasers do not have to register wells with production exempt under section 39 29 105(1)(b), C.R.S. where the well American Petroleum Institute (API) number shows exempt levels of monthly production on the conservation levy records of the Colorado Oil and Gas Conservation Commission.

(3)Annual Report.

(a) Every producer or first purchaser required to provide a statement pursuant to section 39-29-111(4), C.R.S., shall issue such statement using form DR 0021W, Oil and Gas Withholding Statement, and report on such form the amount of tax deducted and withheld pursuant to section 39-29-111, C.R.S., and the following amounts determined for the calendar year on both an accrual basis and a cash basis:

(i) Gross income;

(ii) Gross income attributable to production that is exempt from taxation pursuant to section 39-29-105(1), C.R.S.;

(iii) Ad valorem tax assessed or paid in accordance with section 39-29-105(2), C.R.S.; and

(iv) Ad valorem tax assessed or paid in accordance with section 39-29-105(2), C.R.S., on oil and gas production that is exempt from taxation pursuant to section 39-29-105(1), C.R.S.

(b) On or before April 15 of each year, every producer or first purchaser shall file with the Department:

(i) a copy of each form DR 0021W, Oil and Gas Withholding Statement, required pursuant to section 39-29-111(4), C.R.S., and paragraph (3)(a) of this rule; and

(ii) a form DR 0456, Annual Reconciliation of Oil and Gas Severance Withholding

(c) A producer or first purchaser who fails to comply with the annual reporting requirements prescribed by paragraph (3)(b) of this rule shall be subject to the penalty imposed pursuant to section 39-29-115 (1.5), C.R.S.

(4)Returns and Liability. The tax is imposed on the interest owner who shall file the severance tax return and pay the severance tax. The return shall reflect the amount listed on form DR 0021W, Oil and Gas Withholding Statement, received from the producer or first purchaser; the tax liability shall not be shifted onto another party. For example, a limited partnership, limited liability company, S Corporation, or joint venture must file at the entity level. Partners, members, or shareholders shall not file a severance tax return to report oil and gas income received by the pass-through entity. The interest owner is the person who receives income from the producer or first purchaser regardless of the person's form of organization, including individual partnerships, limited liability companies, corporations, or joint ventures.

(5) The amount withheld pursuant to section 39-29-111, C.R.S., by the producer or first purchaser may be claimed as a credit by the interest owner of oil and gas or oil shale production when such party files a return as required under section 39-29-112, C.R.S.

(a) If the credit for the amount withheld exceeds the tax shown on the return, the excess credit shall be refunded to the royalty interest owner.

39-29-111

43 CR 23, December 10, 2020, effective 12/30/2020