WV Real Estate Taxes on Minerals
Mineral interests in WV are taxed the same as your home. You will pay 60% of the appraised value on the minerals at the levy rate for your county. The value of these minerals in based on WV Code procedures and is the same for all counties in WV. They all use the same formula methodology.
Once gas is being produced, the assessed value for both the working interest and royalty interest will increase, sometimes substantially, because the assessment is then based upon the amount of income generated to the producer, and the amount of royalties paid to the property owner. This income information is supplied to the West Virginia State Tax Department by operator of the well. The State Tax Department, not the Assessor's Office, uses this income information to determine the assessed value.
OLD FORMULA PRE-JULY 2021: The appraisal formula for producing wells is somewhat complicated because it includes estimating annual production for 1st year wells, utilizing actual royalties for 2nd year wells, and calculating a 3-year average for older wells. The appraisal model then capitalizes that value to predict a future income stream and then discounts that future income to a present worth value. In our area the appraised value of the royalty interest usually equals 2-5 times the amount of one year’s income. The assessed value would be 60% of that amount.
Everything is on a 2-year delay in Royalties. Therefore, your 2021 tax bill is based on 2019 production numbers. A quick calculation mineral owners can use is “Income X 5 X 60% X levy rate”. This calculation will usually be a little high but get you close to your tax amount. You can also use this calculation to estimate future taxes.
If there is a question about the assessment and valuation of your minerals, contact your local county assessor’s office. You should contact them by the end of January. You can ask for a review of your assessment by the Assessor's Office at any time during the year if you believe either of two things: 1) items that affect the value of your property are listed incorrectly; or 2) the estimated market value is too high and you have evidence that similar properties have sold for less than the market value of your property. You have a right to filing a written protest with the Clerk of your County Commission sitting as a Board of Equalization and Review.
Important Things to Know about your WV Mineral Real Estate Taxes
Minerals are taxed at a minimum value until production begins.
Mineral Assessed Value is 60% of the appraised value of the property.
WV appraisal values for minerals are based on the start date of drilling and production income. The calculation also involves yield capitalization, discount rate, use of decline rate factors for the well area, well expenses and the producing formation.
Each horizontal well is appraised separately.
Production income is the amount paid for gas and oil that was removed from the ground during the calendar year. A calendar year is January through December.
The 1099 you receive is based on the calendar year royalty check dates. Typically, a producer cuts a check 60 days after the production month, for example, April production income is paid in June. So, you have to look at the production dates on your royalty statements to determine your gross production income for the calendar year not the 1099 you receive.
Based on Gross Production – not your net royalty check. If your lease allows for deductions and the producer withholds amounts for post-production costs your real estate taxes are based on the gross before deductions not what you actually receive.
You can use the WV DEP website to search well production data by month. After searching and locating the well leg you can view the monthly well production data that is submitted to the State of WV.
Taxes you pay on your mineral interests are deductible on your federal tax return in the year you make the payment for the taxes. For example, if you pay your 2020 mineral tax bill in 2021, then it is deductible on your 2021 tax return.
The shock of your first (and sometimes subsequent) mineral real estate tax bill can be overwhelming but understanding the above facts and circumstances will help.
Plan, save and budget for your future mineral real estate tax bill.
Make sure you a receiving a mineral real estate tax bill and your billing address is updated with the County Assessor. You don’t want your minerals sold at auction unknowingly.
If you don’t like the process, contact your local legislator. Your local county assessor is only following WV state guidelines and are at the mercy of the state tax department. The county assessor should be able to walk you through the taxing calculation. You can view the rules of WV Ad Valorem taxes here.
WV Legislature passed House Bill (HB 2581) in April 2021 requiring the State Tax Commissioner to develop a revised methodology to value oil and natural gas properties and to be effective July 1, 2021. The State Tax Department submitted an emergency rule on how it planned to carry out HB 2581.
According to the emergency rule adopted, the value of oil and natural gas-producing property will be determined by “applying a yield capitalization model based on a weighted average cost of capital to the net receipts (once royalties and annual operating costs are subtracted from gross receipts) for working interest (which is the production companies) and yield capitalization model applied to gross royalty payments for royalty interest (which is the mineral owner).”
- The new rule also eliminates the use of a three-year weighting.
- This new methodology will affect 2022 tax bills.
- Only the WV State Tax Department will have these calculations.
Numerous WV mineral owners received a “Tentative Notice of Increase in Appraisal”. The appraised mineral values for tax year 2023 compared to 2022 are triple, quadruple, or more than the previous year’s value. What changed? Why the increase? Where did these numbers come from?
What did change is the methodology of the calculation as directed by the Legislature from HB 2581. But, how did it change? And how does the new yield capitalization model work? What numbers are used in this calculation? All good questions, let’s provide the answers.
The yield capitalization model is based on the Gross Receipts for each producing well. The gross receipts amount will be apportioned to the working interest and the royalty interest. The royalty interest gross receipts shall be discounted by applying a decline rate and a mid-year life Inwood factor reflecting the capitalization rate. This calculation determines the projected future income of the well and is the basis for your appraised value.
You can find the decline rate and capitalization rate information in the current WV natural resource property valuation variables report. You will need to know what the age of your well is and your gross royalties for the base year. The age of your well is the number of years between 7/1/22 and the first month of production. For example, if your date of first production is December 2015, then your age of the well is seven (7) years.
Next, you need to know the base calendar year gross royalties for your well to properly calculate the appraised value. For 2023 assessments, the calendar year of 2021 gross royalties (always on a two-year look back) are used as the base year. If your lease allows for deductions, this will not be the amount of your check, but the amount before deductions. Calendar year production is not the amount reported on your IRS Form 1099 for the year, because payment dates are 30-90 days behind the production month. For example, SWN pays 60 days after the production month, June production is paid in August. Therefore, to determine the calendar year 2021 production for SWN, you would add up March 2021 (January production) through February 2022 (December production) gross royalty checks. If you receive multiple checks from producers on the same well, you need to add up each producer’s royalties for the calendar year. In Ohio County, many mineral interest owners get paid by SWN and Equinor from a well, so both royalty amounts will need to be added up for the year.
You can verify your calendar year well amounts with what is reported by the well producer to WV by calling your county assessor’s office and asking what amounts were reported under your name for each well. Your totals and the totals that are reported to WV and verified by your assessor’s office should be close if not exact. If not, you will need to contact your well producer to determine the differences.
Use our Mineral Appraisal Calculator to verify your well values for 2024.
This calculator is accurate for Marcellus horizontal wells in Brooke, Hancock, Marshall, Ohio, Tyler, and Wetzel Counties. Looking for the 2023 calculator? Click here.
Note: Our calculator is not accurate for year 1 of production. First-year well production must be annualized using a different formula.
Calculate your appraised value for each well on your real estate tax ticket. Your royalty interest value total for all wells on your county real estate tax ticket should equal the appraisal value on your notice and what you will be paying taxes on for 2024.
Your real estate tax bill will be 60% of the appraised value times the applicable county tax rate. Contact WV Tax Division at 304-558-0781 or email email@example.com if you feel your appraised value calculation has been calculated in error.
If you want to appeal your appraisal amounts, you need to contact your County Commission office before February 1st of each year. If you miss the time frame to appeal through the County Commission, then you can file an appeal at the WV Office of Tax Appeals. You will need to file a petition for a property tax appeal form. You have one year to ask for exoneration.
Legislation is the only way to get things changed, so if you don’t agree with this new yield capitalization model, the way these notices are worded, the difficulty in getting an incorrect valuation corrected, or another problem, then you should contact your legislators in the House and the Senate.
Discuss your problems and your frustrations. Ask for transparency from the WV Tax Division. (FYI, the WV State Tax Department recently changed its name to the WV Tax Division). Transparency should be a requirement to provide the actual calculation numbers and support for each mineral owner’s tax bill.
Keep in mind, paying your mineral real estate tax bill is a deductible expense against your royalty income. If you need professional tax assistance and guidance, contact the Ohio Valley’s only CPA and Certified Mineral Manager.