How to file property tax returns and appeal valuations for oil and gas properties

Very little is straightforward about the oil and gas industry — especially when it comes to taxes and property valuation. Whether you’re a working interest owner (WIO) or a royalty interest owner (RIO), you likely have concerns about getting accurate property tax valuations and filing returns correctly.

To that end, we’ll review some of the complexities around: 

• Filing basics for oil and gas property taxes
  
• Why is my property tax valuation so high?
  
• How to appeal high oil and gas property tax valuations
  
• Simplifying oil and gas property tax returns and other challenges
  

One of the most important concepts to understand about property taxes in the oil and gas upstream market is real vs. personal property. 

To break it into simple definitions:

• Real property is anything permanent, such as buildings, infrastructure, and the land itself.
  
• Personal property refers to movable items owned by your business, like trailers, vehicles, furniture, and equipment.
  

While you do have to pay property taxes, you likely won’t have to file returns for real property. However, in most states, you’re required to file a return for your personal property. 

For tax purposes, are oil and gas real property or personal property? Well, they’re both. Prior to extracting oil or gas, they’re considered real property. Once oil and gas have been brought to the surface and can be moved, they’re considered personal property. 

When preparing returns for oil and gas properties, you’ll include the costs for personal assets like pumped oil, as well as surface equipment used in the extraction process, such as pipelines, pumpjacks, and drilling rigs. But all that untapped stuff? You don’t have to include oil, gas, or other mineral interests still in the ground. 

Once you submit your return to your local assessor, they review and value your assets. They send a valuation notice and you can review it to determine whether to accept or appeal the assessment.

There are several reasons why a property tax assessment may cause a bit of a shock. In addition to human error or miscalculation on the assessor’s part, some common reasons for an artificially high valuation include:

• You’re being assessed for property you’ve moved, sold, or leased
  
• Some of your assets were counted twice
  
• Your property was underdepreciated, inaccurately recorded, or overvalued for your location
  
• Your property value increased by an unreasonable, or even illegal amount
  

If you believe your valuation is too high, you have the right to appeal. Both WIOs and RIOs have a right to appeal, but the motivation to do so will differ for each type of owner. 

WIOs typically have multiple properties to worry about. As such, they may opt to skip the appeals process for any one property. Simply put, the return on investment may not be worth it unless the valuation is significantly higher than expected.

RIOs typically have fewer properties, and a high valuation has a more significant impact. They retain the right to appeal a valuation even if the WIO chooses not to. However, an RIO will likely need to work with the WIO to obtain the information needed, including a full list of operating expenses and other details, in order to justify lowering the valuation.

If an RIO can demonstrate the value of an appeal to the WIO, they can partner to build a stronger case for any conversations with the assessor or hearings with the appeal board.

The first step in the property tax valuation appeals process is to notify the jurisdiction via a letter or official notification form. You typically have about 30–45 days from the time you receive your valuation notice.

You’ll get confirmation your notice of appeal has been received and the jurisdiction will schedule a hearing, letting you know how much time you have to put your case together. In some states, hearings can happen as early as 30 days after receiving your notice of appeal; in others, it could take up to a year to get your assessment adjusted.

A couple important things to note:

• You can always withdraw an appeal, but you can’t file one after the deadline passes. If you’re in doubt, begin the appeals process while you determine the accuracy of the assessment.
  
• An appeal doesn’t necessarily extend your remittance due date, so you may have to pay the higher bill before your case is settled. Not doing so could result in fines and fees for overdue taxes.
  

Filing property tax returns and managing valuations can be a significant time investment for businesses, especially when you’re already managing the nuance and complexity of taxes and regulations for the oil and gas industry. 

Luckily, you’re not on your own. Avalara Property Tax includes automated workflows that make filling out returns faster and more accurate. A tax calendar helps your team easily track deadlines for returns, appeals, and tax bills.

You can use Avalara Property Tax to:

• Verify mailing addresses and key dates
  
• Compare assessed values to those on your return and against prior years’ assessments
  
• Track various oil and gas interests to simplify assessment and tax bill management
  
• Create thousands of returns packages, complete with cover letters, return forms, and attachments, in minutes
  

Contact us today to find out if Avalara Property Tax is right for your business.