There are four basic steps to create a system-generated severance tax calculation:

1. Create the specific 100% Tax expense accounts in your Chart of Accounts.
2. Set up the Tax Rate Maintenance screen.
3. Assign the Rate to a specific property.
4. Extract the calculated entries as part of the Revenue Cycle.

The link between a tax calculation and a property is the unique Tax Code for that property in a specific state.  Therefore, WY-1 is a different Rate Maintenance record than TX-1.  

You can have multiple Tax Codes for a specific state.  For Example, in Oklahoma, new wells receive an incentive. You could have one Code for the incentive and one for the regular rate.

Multiple sequence numbers can be used for a specific Tax Code.  Texas is an example state where this technique may be used.

• Sequence 1 would calculate your Oil Tax on 4.6% (tax rate=.046) of the gross dollars and
• Sequence 2 would calculate the State Cleanup Fee of 0.625% (tax rate=.00625) of the volume produced.  
• The combination of the two Sequence numbers would constitute the tax calculation for that specific Tax Code.
• Another reason to have multiple sequences is if your tax rates change as of a specific date, you can add another sequence for the new rate with the new date.

For Wyoming clients with multiple Ad-Valorem tax rates, you can have one Tax Code with multiple sequences. The additional ad-valorem sequences would not have a Tax Rate setup; however, the Use Replacement Rate from Property Maintenance would be checked. Once the sequences are set up on the Property Maintenance > Sev Tax tab, the rate from the Property Maintenance will be used instead.

Also see: Allocated Flat Amount

Account Maintenance [F11]

A minimum of two accounts are needed to be set up

1. Set up a separate account for each stub detail line you would like your owner to see. To make the accounts available to Revenue, it must have an “Account Type” of “R” for Revenue, it must have a “Category Name” of “TAXES,” and it must have the correct Product Code assigned. The “Applicable Interest Types” defaults to “A” for all (owners).  Only change this switch if the tax is applied to Working or Non-Working (royalty) only.
2. Set up a separate Liability account for each governmental entity you are responsible for remitting payments to. This account clears out when you make that payment.  
   

Account numbers and descriptions—We recommend keeping your account descriptions as generic as possible so that all states can use the accounts. Another alternative is to set up specific accounts for each state tax.

Severance Tax Rate Maintenance

Set up the tax codes and sequence numbers for each state to compute the tax(es). The account settings you choose are how you want to display the taxes on the checks and how you need to remit to the governmental entities. In Texas, for example, there are a number of different “exemption” codes that a property can utilize. 

Now that you have set up your severance tax codes, you can use the List button on the Severance Tax Rate Maintenance screen. The P-6 Severance Tax Rate Listing will allow you to see each tax code and sequence and how it is set up.

For example, the CO Tax code:

1. All Revenue Tax Accounts are different so that each tax will show as separate stub detail lines on checks.
2. The Severance Tax Payable Accounts are different accounts that allow for tracking Liabilities in separate G/L accounts so that you can balance your account per governmental entity.

Where the TX code above is set up differently:

1. The Revenue Tax accounts are the same for gas and will show up as one stub detail line on the check.
2. The Severance Tax Payable Account is also one account per State Severance Tax.

On the Property Maintenance for each property, enter the state on the General Tab, and on the Severance Tax Tab, enter the Severance Tax Code to be used to calculate the tax.

TECH TIP: Use the effective date only if you have any date-sensitive tax needs, such as if a property has an exempt certificate for 5 years, then it becomes taxable. You are still liable for the “clean-up fee,” so you will need a tax code with just that one sequence.

Special Situation – Tax Exempt Owner.

To exempt a specific owner(s) from the Severance Tax calculation, enter "TAXES" in the exemption column of DOI Maintenance in Revenue/Billing. Also, see how to Edit a DOI.

During Run Ticket Entry

If a property has the Severance Tax set up, during ticket entry, the Estimated Taxes will show in the Daily Run Ticket Maintenance.

During the Run Statement

The estimated tax will also show on the Operator Run Statement.

During Revenue/Billing

1. After you have Extracted your Revenue/Billing Cycle, on the Distribute/Combine menu item is a List button to view how Pak Accounting calculated the Severance Tax for each applicable property  (Note: the “ST” in the From (FM) column below).
   
2. After you Distribute/Combine, on the Pre-Check Reports, Print Distribution by Property, you can see the Severance Tax calculation that is being netting out of the revenue check.
   
3. Now that you have deducted the State Severance Taxes from the distributions you can go into Revenue/Billing > Reports > States tab.
   Use the Drop Down to select the state you need.
   
4. Once the state is selected, the screen will show all reports available. Click into the you need  and fill out the fields accordingly.