ADMINISTRATIVE NOTICE 95-24
SUBJECT: Severance Tax
and Property Tax -- Treatment of payments gas producers
receive under Columbia Gas Transmission Corporation's Plan of
Reorganization approved by Creditors and the United States Bankruptcy
Court
This administrative notice provides guidance to
producers of natural gas on state tax ramifications of receiving
Columbia Gas Transmission Corporation Bankruptcy settlement proceeds.
These proceeds can be divided into two basic components--contract
damages and flowing gas damages. The larger component
for many gas producers will be contract damages awarded
as a result of Columbia's breach of various contracts that Columbia
executed with gas producers. The smaller component of the proceeds--flowing
gas damages--is for gas production that was actually supplied
to Columbia and not paid for. This smaller component is referred
to in the Bankruptcy settlement documents as the "gas costs."
Contract damages are
not subject to West Virginia severance tax because the award for
contract damages is not a payment received from a purchaser
for the production, sale and delivery of natural gas. For this
same reason, contract damages will not be included in the
value of the working interest for West Virginia property tax purposes.
However, the contract damages will probably be subject
to federal and state income taxes. Producers should consult their
individual tax advisers as to the possible federal income tax
ramifications of receipt of contract damages. Whatever
position is appropriate to take for federal income tax purposes
with respect to contract damages should also be taken on
the producer's West Virginia income tax return.
Flowing gas damages are
being paid for past gas production received by Columbia and are
subject to the West Virginia Severance Tax. Flowing gas damages
should be reported for severance tax purposes and severance tax
paid for the tax period in which the cash basis producer actually
receives the flowing gas damages. Because of the nature
and timing of the receipt of flowing gas damages, these
damages cannot be included in the value of the working interest
for West Virginia property tax purposes for the year in which
the gas was produced. However, if Columbia had paid for the production
when Columbia received the natural gas, the value of that gas
would have been reported for West Virginia property tax purposes.
Therefore, flowing gas damages since they represent payment
for gas produced, as opposed to other damages, should be reported
for property tax purposes. If flowing gas damages received
for production taken by Columbia are received by December 31,
1995, they should be reported as gross receipts for the assessment
date July 1, 1996, for 1997 property taxes. If received in 1996,
they should be reported as gross receipts for the assessment date
July 1, 1997. In this manner, counties can receive the benefits
of lost revenues for which payments are now being received. Again,
as to the federal and state income tax ramifications of the flowing
gas damage award, gas producers should consult their individual
tax advisers. If you have any questions about this administrative
notice, please feel free to contact our Taxpayer Services Division.
Issued: November 29, 1995 James H. Paige III
Secretary/Tax Commissioner
For additional information please write or call:
Department of Tax and Revenue Operator on Duty 8:30 am - 4:30 pm
Taxpayer Services Division Monday through Friday
P. O. Box 3784 Telephones: (304) 558-3333 or
Charleston, WV 25337-3784 1-800-982-8297 (within W. Va. only)
Telecopier: (304) 558-3269
TDD Service for the hearing impaired:
1-800-282-9833
Field Offices:
| Field Offices with taxpayer service representatives are located in the following cities: Beckley Suite 109 407 Neville Street Beckley, West Virginia 25801 Phone: 256-6870 | Clarksburg Gore Hotel 205 West Pike Street Clarksburg, West Virginia 26301 Phone: 627-2165 |
| Huntington 1037 6th Avenue Huntington, West Virginia 25701 Phone: 528-5565 | Martinsburg 1432 Edwin Miller Blvd. Martinsburg, West Virginia 25401 Phone: 267-0020 | |
| Parkersburg 400 5th Street Parkersburg, WV 26101 Phone: 558-3333 | Wheeling 40 14th Street Wheeling, West Virginia 26003 Phone: 238-1150 | |