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
  • Past due taxes are charged interest beginning 61 days after the due date.
  • To calculate interest on past due taxes, visit Interest Owed and Earned.

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.

Vented/Flared Casinghead Gas

General Information

The Railroad Commission of Texas (RRC) considers the protection of the environment one of its primary responsibilities; however, releases of casinghead gas resulting from oil production are unavoidable.

Title 16, Texas Administrative Code, Statewide Rule 3.32 (SWR 32) allows operators to vent or flare casinghead gas while drilling an oil well, up to 10 days after a well’s completion.

The RRC requires a permit for venting or flaring of casinghead gas from oil wells pursuant to SWR 32. Operators must:

  • notify the RRC of the venting/flaring as soon as reasonably possible, in accordance with subsections (f)(1) and (g)(1); and
  • timely submit a venting/flaring application in order to obtain a permit.

Permitted Venting/Flaring of Casinghead Gas Not Taxable

In accordance with Tax Code, Section 201.053, the volume of the casinghead gas from an oil well is not taxable provided the casinghead gas was lawfully vented or flared under SWR 32. The RRC permits venting or flaring for a specific length of time.

Oil Wells or Leases Certified by RRC for the Venting/Flaring of Gas Qualify for Tax Exemption

Tax Code, Section 201.058 allows permitted operators to increase their production by marketing gas from an RRC certified oil well or lease for which gas was released into the air for 12 months or more. If certified, the operators of these oil wells are entitled to a 100% tax exemption on the production resulting from the marketing of such gas for the life of the well or lease.

Duration of Tax Exemption for a Well or Lease

The tax exemption begins on the start date indicated on the RRC certification letter and ends when the well is no longer active.

Certification by RRC

Taxpayers are required to:

  • submit an application for certification of vented/flared gas to RRC; and
  • obtain a certification letter from RRC for the well or lease.

Comptroller’s Application

Taxpayers are required to:

  • submit Comptroller’s Form AP-217 (PDF); and
  • submit a copy of the RRC certification letter.

Taxpayers receive an approval letter from Comptroller’s office for the tax exemption.

Oil Field Clean-Up Regulatory Fee

This fee is based upon the volume reported on line 16 (“Your Volume”) for report periods September 2003 and after.

Exemption from Natural Gas Tax

100 percent.

Natural Gas Tax Reports

To report the tax exemption for vented/flared gas, enter the following on Forms 10-163 (PDF) and 10-173 (PDF):

  • all required information on lines 1 through 8, line 11, line 15, and line 18;
  • “04” on line 9, titled “Exempt Type”;
  • the producer name and taxpayer number on lines 12 and 13,;
  • the volume of the vented/flared casinghead gas on line 16, titled “Your Volume”;
  • an estimated value of the casinghead gas based on the selling price of the casinghead gas for the production period on line 17, titled “Value of Your Volume”; and
  • zero on line 22, titled “Net Taxable Value”.

Recovery of Taxes Previously Paid

If a taxpayer paid tax prior to approval of the exemption, it must file an amended report within four-years from the due date of a filing period to receive a refund.

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