Our friends at Liskow & Lewis (www.theenergylawblog.com) have posted a very insightful article on the “rash of oil severance tax audits” currently being conducted by the Louisiana Department of Revenue (the “Department”). According to the article, the Department has determined that negative adjustments to the market center price are no longer available and thus additional severance taxes are due on the difference between the unadjusted market center price and the adjusted price. This is a dramatic change of procedure from current custom, based on La. RS 47:633(7)(a) which determines severance taxes based on the higher of two options (1) the gross receipts received from the first purchaser, less charges for trucking, barging and pipeline fees, or (2) the posted field price.
The Liskow & Lewis article can be found HERE.
Background: the Louisiana Department of Revenue transferred responsibility for performing the audits to the Department of Natural Resources in 2010. This resulted in a 99.8% reduction in unpaid severance taxes between 2010 and 2012. Estimated losses are upwards of $1.1 Billion. The recent uptick in audits can be attributed to the return of audit responsibility to the Department of Revenue.