Producers or first purchasers must withhold from the gross income of all interest owners including royalty, working or any other interest including their own interest. They will send you an Oil and Gas Withholding Statement (DR 0021W) by March 1 of each year. This form lists your gross income which you must use to calculate your severance tax and the amount the producer has withheld and paid to the state from your royalty or production payments. If you own interest in more than one well or field, you should receive a separate withholding statement from each producer. A copy of each withholding statement must be attached to your severance tax return.
The producer or first purchaser also will list your share of "ad valorem" taxes on the withholding statement. Ad valorem taxes are paid by the producer to local governments. You are allowed to deduct a percentage of your share of ad valorem taxes paid on actual oil or gas production. More information can be found in Publication FYI General 4, Severance Tax Information for Owners of any Interest in any Oil and Gas Produced in Colorado and in the Colorado Oil and Gas and Carbon Dioxide Severance Tax Schedule (DR 0021D).
Important Announcement: Severance Tax Oil and Gas Withholding Penalties