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Royalty Interest: Common Questions

Who is subject to the new tax? The tax is required to be withheld on all nonresident individual interest owners. Residency for Individual Oklahoma income tax purposes is currently defined Rule 710:50-3-36.

710:50-3-36. Residency

(a) An Oklahoma resident is a person domiciled in this state. "Domicile" is the place established as a person's true, fixed, and permanent home. A domicile, once established, remains until anew one is established.

(b) One is presumed to retain his Oklahoma residency if he has:

(1) An Oklahoma Homestead Exemption;
(2) His family remains in Oklahoma;
(3) He retains an Oklahoma drivers license;
(4) He intends to return to Oklahoma; or
(5) He has not abandoned his Oklahoma residence.

Anyone not meeting the above criteria is considered a nonresident.
For corporations and other entities, 68 O.S. § 2353 (9) defines a resident corporation as one whose principal place of business is in Oklahoma. Nonresident corporations are all corporations that are not resident corporations.

Is the tax on the owners gross or net royalty amount?The withholding is calculated on the gross amount. Gross royalty should be the same as reported for federal income tax purposes on IRS Form 1099.

Is there an application to be completed by the remitter of this tax?Yes. If you are going to be remitting the tax withheld you must complete the application.

What is the prescribed form that is to be used when making the quarterly payments?Oklahoma Tax Commission Form WTR10002 is to be used to remit quarterly royalty withholding.  This form is available for download here.

Can the payment be made by either check or Electronic Funds Transfer (EFT)? The Oklahoma Tax Commission will accept check and/or EFT transactions. The address for mailing remittances is:Oklahoma Tax Commission,  PO Box 26860,  Oklahoma City, OK 73126-0860. To register for EFT, please call (405) 522-0214 for an EFT Registration Packet.

Is there a prescribed form to be sent to the State of Oklahoma for the annual reporting of the tax withheld in the previous year? Can this be sent either hard copy or electronically?Currently, royalty payments are required to be reported via Federal Form 1099-MISC or OTC Form 500-A. The transmittal cover sheet provides a space for state income tax withheld. These forms can be submitted either in hard copy or magnetic media.

When are the reports due? Reports are due the 30th day of the month following the end of the quarter. Pre-printed forms will be mailed prior to the due date.

I only receive about $80 annually in Oklahoma oil and gas royalty payments. Are there any exemptions for small amounts of annual royalty payments?There is no exemption for small amounts of royalty payments.

I need a form to file for my refund of withholding from my royalty payments. What form do I use and where is it available?The form that individuals affected by oil and gas withholding should file is the Form 511NR.  For corporations, affected by oil and gas withholding should file OTC Form 512 and 512S.For fiduciary, affected by oil and gas withholding should file OTC Form 513NR.Tax forms are available for downloading from our Income Tax forms page.

I currently make estimated payments on the royalty payments I receive. Now I've received a letter from an oil producer saying that I will have withholding taken out of my royalty payments. Isn't this double taxation? The withholding amounts that are required to be deducted from royalty payments are considered in lieu of any estimated taxes that you may be currently paying on royalty payments. Please note however that this only affects income generated from the royalty payments. If you have other Oklahoma income you would need to continue to make Oklahoma estimated payments for that income.

 

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Last Modified 10/10/2011

 

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