Saturday, August 22, 2015

Ky. high court: Gas firms can't deduct severance tax from royalties; has implications for other states

Natural-gas producers in Kentucky can't deduct severance taxes from landowners' royalties unless the lease between the parties allows them to do so, the state's highest court ruled Thursday.

"Gas industry supporters argued that applying all the severance tax to producers would hurt small producers," Bruce Schriener reports for The Associated Press. A majority of the Kentucky Supreme Court rejected that argument, alluding to past legal and political battles involving the coal industry, mainly in Eastern Kentucky. "This time-worn tactic has been used by mineral producers for over a century to plague this embattled region of our commonwealth," Justice Bill Cunningham of Western Kentucky wrote for the five-member majority.

The dissenting opinion by Justice Lisabeth Hughes Abramson of Louisville, joined by Chief Justice John Minton of Bowling Green, "said natural-gas processors should be able to deduct the portion of the tax attributable to post-production costs when calculating royalties, but they may not deduct the portion of the tax attributable to extracting the gas," Schreiner reports.

The case arose when EQT Production Co. deducted the tax from its standard 1/8 royalty and Appalachian Land Co. sued. "At issue was the fact that natural gas is not sold at the wellhead," Joe Fisher writes for NGI's Shale Daily. "The deduction of post-production costs from royalty calculations has been an issue in Pennsylvania, where landowners have lobbied lawmakers for more protections on royalties."

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