Be alert to the following filing tips to avoid delays in return processing, payments and refunds.
- Use the correct tax year form when filing a Colorado severance tax return.
- Married couples should not file separately if they file their income tax returns jointly.
- Taxpayers must complete the DR 0021D, “Colorado Oil and Gas Severance Tax Schedule" and attach it to the DR 0021 return. Both of these forms are in the Colorado Severance Tax booklet.
- Be sure to carry the correct totals from the DR 0021D schedule to the DR 0021 return.
- Attach all DR 0021Ws (Oil and Gas Withholding Statement) to the DR 0021 return. Missing DR 0021Ws result in delayed refunds.
- Add up all the DR 0021W withholding statements, then round to the nearest dollar. Do not round each individual DR 0021W statement and then add them.
- Do not use a 1099 MISC withholding document for severance tax filing. 1099s are income tax withholding documents. They will not prove severance tax withholding and the department will not allow credit based on the withholding shown on a 1099 document.
- Do not try to claim a percentage of the withholding shown on the DR 0021W and do not create spreadsheets to show the ownership percentage. Use the amounts on the DR 0021W. The ownership percentage has already been calculated by the entity that issued the DR 0021W withholding statement.
- Do not claim all of the withholding but only part of the income.
- Taxpayers must not deduct gross payments attributable to stripper well production if these are not shown on a DR 0021W.
- Taxpayers are either on an accrual basis or a cash basis – not both. Most individuals are on a cash basis while most corporations are on an accrual basis.
- If a return should be filed on behalf of an entity, such as partnership or limited liability company, do not try to file as an individual.
- Severance tax returns must be filed jointly by a married couple even if the income is earned by just one spouse.
Corporations that expect their Colorado severance tax liability for a tax year to exceed their Colorado severance tax credits by $5,000 or more are required to make estimated tax payments.
To avoid underestimation penalties, corporations must make severance tax estimated payments by the 15th day of the month and payments must be submitted by Electronic Funds Transfer (EFT).
For more information, please review FYI publication General 4, Severance Tax Information for Owners of any Interest in any Oil and Gas Produced in Colorado.
Also see Severance Tax Forms.