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The many ways in which states tax the oil and gas industries

Technology has made performing operations in the oil and gas industries much more seamless during the past few decades. This has motivated many across Louisiana and other states to tap into these reserves for potential financial benefit. Lawmakers have responded in kind by imposing fees and taxes on the extraction, refining and sale of these industries' byproducts.

Currently, 34 states produce their own natural gas. One of the five largest ones is Louisiana. All but Pennsylvania assess a severance tax to the extraction and production of oil and gas resources. Producers in Pennsylvania end up paying impact fees instead. Currently, there are 31 states that produce crude oil.

All the states involved in the oil and gas industry either assess taxes or fees on production. Each has their way of going about doing that.

Some assess a rate that equates to a fraction of its market value based on the volume that is produced. Many states also require production companies to pay assessments, levies or conservation fees. Other ones offer exemptions, tax breaks and credits to companies to tap into certain resources.

Most states tax the value of the gas or oil produced before it's distributed. In order for states to collect taxes this way, they must closely monitor production so that they'll know how much money they're due. Since the amount they're assessed is based on the current market value, a number that is constantly fluctuating, it can make it hard for oil and gas producers to keep track of what they owe.

Of the states that tax the volume produced, they do so by tallying up how many barrels of oil there are or by determining how many 1,000 cubic feet units of natural gas there are. This method of taxation doesn't account for price fluctuations like the production tax does.

Making sense of the tax system used in the oil and gas industry isn't easy. If you miss paying taxes or fees, then fines and penalties can be assessed that may shut your operations down. If the Louisiana Department of Revenue has filed suit against your Lafayette business, then you may find it helpful to have an experienced tax law attorney on your side who has previously represented clients in similar situations.

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