Tax Responsibilities

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Tax Responsibilities

 

Many of the current industry lease form in circulation are silent about taxes.  That subject, however, merits attention.  There are severance taxes on production, mineral documentary taxes, ad valorem taxes on personal property, and license fees that will result from the lease and operations and production under the lease.  An example of a tax clause that oil companies have accepted in Alabama is:

Taxes.  Lessor and Lessee shall bear, in proportion to their respective participations in the production hereunder, all taxes levied on Minerals covered hereby or any part thereof, or on the severance or production thereof, and all increases in taxes on the Leased Premises or any part thereof by reason of actual or assumed existence of, or the discovery of, a Mineral thereon or thereunder. Lessee may pay such taxes and deduct the part thereof chargeable to Lessor from amounts payable to Lessor hereunder, and shall furnish a statement of all taxes so paid and deducted at the time of payments to Lessor. Any and all taxes, license fees and other governmental charges assessed against the works, machinery, structures, and other things constructed or used by Lessee in connection with its operations hereunder shall be borne and paid by Lessee alone. Notwithstanding anything in this Section 5 to the contrary, Lessee shall bear and pay all Mineral Documentary Taxes levied pursuant to Sections 40-20-30 through 40-20-37 of the Code of Alabama (1975) and all subsequent amendments.

Copyright 2011 by Edward G, Hawkins. All rights reserved.