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.
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 2020 tax bill is based on 2018 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.