Common Severance Tax Filing Errors

To avoid delays in return processing, payments and refunds, follow these tips:
 
  1. Indicate the correct tax year when filing a Colorado Severance Tax Return.
  2. Married couples should not file separately if they file their income tax returns jointly.
  3. Taxpayers must complete the Colorado Oil and Gas Severance Tax Schedule (DR 0021D) and attach it to the DR 0021 return. Both of these forms are in the Colorado Severance Tax Booklet.
  4. Be sure to carry the correct totals from the DR 0021D schedule to the DR 0021 return.
  5. Attach all Oil and Gas Withholding Statements (DR 0021W) to the DR 0021 return. Missing withholding statements will result in delayed refunds.
  6. 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.
  7. Do not use a 1099 withholding document for severance tax filing. 1099 forms 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.
  8. 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. Do not try to claim a percentage of the withholding shown on the DR 0021W. Do not create spreadsheets to show the ownership percentage.
  9. Taxpayers must not deduct gross payments attributable to stripper well production if these are not shown on a DR 0021W.
  10. 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.
  11. If a severance tax return should be filed on behalf of an entity, such as partnership or limited liability company, do not try to file as an individual.