OUR THOUGHTS ON:

Pennsylvania Inheritance Tax - Policy on Mineral Rights and Natural Gas

State and Local Tax

By Matthew Dodge

On July 10, 2012, the Pennsylvania Department of Revenue issued Inheritance Tax Bulletin 2012-01, clarifying its position on mineral rights and natural gas interests with respect to inheritance tax.

Mineral rights are valued using the same methods as those used to value real property or tangible personal property. A bona fide sale of the rights will clearly establish a monetary value. However, a computed value will be used absent consideration. When no sale or computed value exists, the interest’s actual monetary worth is utilized to calculate taxable value.

Natural gas rights are valued using the same methods as those used to value real property or tangible personal property. A bona fide sale of the rights will clearly establish a monetary value, but absent a bona fide sale, a credible appraisal may establish taxable value. If a sale or appraisal does not exist, then value is determined by the property’s characteristics.

Leased and producing properties: An estate shall value natural gas rights at an amount equal to any amounts received that were attributable to actual production of the natural gas interests at issue during the twelve months prior to the decedent’s date of death, multiplied by two.

Leased, non-producing properties (including unconventional natural gas wells as that term is defined by 58 Pa.C.S. §2301): Interests shall be reported at a value of zero unless, at the time of death, the properties were part of a contractual arrangement whereby the properties generated fixed future payments, in which case the natural gas rights shall be calculated by reducing the fixed future payments to present value as of the decedent’s date of death using established Internal Revenue Service actuarial tables as found in IRS Publication 1457 Actuarial Values Table B, Section 3, Annuity, Income and Remainder Interests For a Term Certain. 

Non-leased, non-producing properties: Interests shall be reported at a value of zero. 

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This advice is not intended or written to be used for, and it cannot be used for, the purpose of avoiding any federal tax penalties that may be imposed, or for promoting, marketing or recommending to another person, any tax related matter.

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