34 Tex. Admin. Code § 3.18 - Tax Reimbursement

(a) Definitions.

(1) Contract -- A signed written agreement between two parties for the sale and purchase of natural gas.

(2) Tax Reimbursement -- A payment that a purchaser of gas makes to a producer for the purpose of reimbursing the producer for Texas severance taxes that are due under Tax Code, Chapter 201.

(b) If gas is sold for cash only, then tax shall be computed on the producer's gross cash receipts. If a purchaser reimburses a producer for severance tax, then the reimbursement is not part of the producer's gross cash receipts and is not subject to severance tax.

(c) Requirements to Establish Tax Reimbursement.

(1) The amount of the tax reimbursement must be separately stated in the contract, check stub, and/or purchaser statement. For example, the contract might specifically state a price per MCF or MMBTU to be paid to the producer by the purchaser for the gas and state an additional amount to be paid per MCF or MMBTU for severance tax reimbursement; or

(2) A written contract between the parties must contain an express statement that the payment that the purchaser made includes severance tax reimbursement to the producer for tax that is due on the gas. Contracts or other documents that merely state that "all taxes" are included are not specific enough to establish that the purchaser has made a severance tax reimbursement. The total amount that is shown on such documents will be presumed to be the producer's gross receipts without tax reimbursement. Either party may overcome the presumption by using the purchaser's records to show that severance tax reimbursement was included in the total payment that was made to the producer. When the total price that the purchaser paid to the producer includes severance tax reimbursement, the taxable value for that gas is computed by dividing the sum of one plus the tax rate into the sum of the total receipts minus marketing costs.