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Mineral Rights and Associated Taxes

Mineral rights can be taxed on both state and county levels. The county level tax is levied through ad valorem, which is Latin for “according to value” and is billed and pain only once a year. In some states, including Texas, the ad valorem tax is only applicable when the minerals are generating income and is paid alongside the state severance taxes.

Since mineral rights are categorized as real property, they are taxed according to their estimated “fair market value”. This refers to the amount (or price) that a willing buyer will pay for a mineral interest in the current market conditions when it is being sold in the open market. Just as with any person, those with mineral rights want to pay as minimal a tax as possible, and this often means lowering the fair market value. In order to maintain fairness, the state of Texas mandates an appraisal method where the market value of where a mineral rights owner is appraised county ad valorem tax is through the value of the discounted cash rate of the discounted cash flow as projected for future production. County ad valorem tax is not included in income tax in last year’s revenue.

The mineral rights owner will be given an estimate on the value of their minerals each year around March given by the county appraisal district. This would provide the mineral rights owner the chance to view their profits and determine whether they would want to sell mineral rights or keep them to get royalties. It is important for the mineral rights owner to talk with those who know how these process works in order to avoid legal complications and not get scammed from your profits. Because county tax and state tax is different, and it is not included in the income tax, many mineral rights owners get confused and end facing legal problems. It is therefore recommended to talk with someone who specializes in mineral rights in order to avoid such difficulties and get the most from their mineral rights.

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