taxes

Natural Gas Production Tax

Who is responsible for paying this tax?

Natural gas taxes are primarily paid by a producer. Depending on the contract between producer and purchaser, both parties can agree that a purchaser will pay the natural gas taxes.

Rates

  • Gas: 7.5 percent (.075) of market value of gas.
  • Condensate Production Tax: 4.6 percent (.046) of market value of condensate.
  • Regulatory Fee: For report periods September 2001 and later, .000667 per thousand cubic feet of gas produced.

Due Date

Monthly on the 20th day of the 2nd month following the production month (for example, April 20 for February activity) OR yearly, if qualified, on February 20 for the preceding year.

Penalties and Interest

Penalties
  • If tax is paid 1-30 days after the due date, a 5 percent penalty is assessed.
  • If tax is paid over 30 days after the due date, a 10 percent penalty is assessed.
Interest

Reporting and Payment Requirements

Select the amount of taxes you paid in the preceding state fiscal year (Sept. 1 – Aug. 31) to find the reporting and payment methods to use.

Less than $10,000

Select one of these reporting methods:

Select one of these payment methods:

$10,000 - $49,999

Select one of these reporting methods:

Select one of these payment methods:

$50,000 - $99,999

Electronic Data Interchange (EDI) is the only available reporting method.

Select one of these payment methods:

$100,000 or more

Electronic Data Interchange (EDI) is the only available reporting method.

Select one of these payment methods:

Crude Oil and Natural Gas Credit Processing

To ensure crude oil and natural gas taxpayers have access to qualified credits as quickly as possible, the Comptroller’s office will refund credits generated after Jan. 1, 2014, upon verification. Learn more.

Natural Gas Production Tax Exemptions

Low-Producing Well Exemption

Get instructions and examples for reporting a low-producing well exemption.

Certified Exemptions

A reduced tax rate can apply if a well qualifies for an exemption that was certified by the Texas Railroad Commission. Certified exemptions and their reduced tax rates are:

  • Two-Year Inactive Well Exemption – Tax rate of 0.0% (.000) of market value of gas applies.
  • High-Cost Gas Reduced Tax Rate – Tax rate of 0.0% to 7.4% (.000 to .074) of the market value of gas applies. The tax rate varies by well depending on how the well’s drilling and completion costs compare to the median cost of all high cost gas wells from the previous state fiscal year (Sept. 1 – Aug. 31).
  • Flared Gas Exemption – Tax rate of 0.0% (.000) of market value of casinghead gas from an oil well applies.
Multiple Severance Tax Exemptions

When an oil or gas well qualifies for multiple severance tax incentives, a taxpayer can choose which incentive is most favorable. For example, some gas wells now qualify for the low-producing well and high-cost gas tax incentives at the same time. Depending on the average price of gas, the low-producing well tax incentive can be lower than the high-cost gas reduced tax rate. Other months, the high-cost gas incentive might be more favorable.

A taxpayer can choose the tax incentive that has a lower tax rate for a gas well for each individual report period, but cannot report both for the same gas well for the same report period.

Crude Oil and Natural Gas Non-Critical Reported Error Messages

Effective April 27, 2015, the Comptroller’s office eliminated all reported error messages considered noncritical. This means error messages labeled noncritical will no longer be displayed on the Crude Oil and Natural Gas Web Inquiry System, making it easier for taxpayers to review and correct all critical errors.

Additional Resources