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. The withholding agent shall withhold 1% of the gross income from oil and gas owed. The aggregate amount withheld each month must be paid by the first day of the third month following the month the tax is withheld. For example, the April withholding will be due on or before July 1.
Withholding Due Dates
Oil and gas withholding payments are due monthly and payments must be submitted via Electronic Funds Transfer (EFT). If you currently do not send EFT payments, set up an EFT account first. The estimated tax payment for each month must be paid by the 15th day of that month. For example, the July payment will be due July 15. Individuals are not required to make estimated payments for severance tax.
Withholding Statements (DR 0021W)
Withholding agents are responsible for completing by March 1 of each year an Oil and Gas Withholding Statement (DR 0021W) for each interest owner from whom you have withheld. On the Oil and Gas Withholding Statement, you must provide for the entire calendar year:
- Gross disbursements made to the interest owner.
- Total amount of severance tax withheld from the gross income payments disbursed to the interest owner.
- Total amount of the interest owner's share of any ad valorem taxes.
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.
An Annual Reconciliation Report (DR 0456) must be filed with the Colorado Department of Revenue on or before April 15, following the close of the calendar year. The Oil and Gas Withholding Statement (DR 0021W) for each person from whom Colorado gross severance tax was withheld from oil and gas payments during the calendar year must be submitted with the Annual Reconciliation Report (DR 0456).
Withholding Account Requirements
To open a severance withholding tax account complete a Sales Tax / Wage Withholding Account Application (CR 0100AP). Be sure to indicate on your CR 0100AP that you are applying for an oil and gas withholding tax account. You can also indicate any other types of tax accounts you would like to open on the form. Oil and gas withholding payments must be submitted by Electronic Funds Transfer (EFT). If you have an existing account please provide your current DOR account number on the CR 0100AP.
Failure to withhold income and make a payment will result in a penalty of up to thirty percent (30%) of the required payment or thirty dollars, whichever is greater, and the interest that is due. Annual Reconciliation Report (DR 0456) for 2010 or later must be filed by the April 15 deadline and include completed copies of the Oil and Gas Withholding Statements (DR 0021W). Failure to meet this requirement may result in a penalty of the lesser of $1,500 or 15% of the total Colorado severance tax that should have been withheld during the year. Section 39-29-115, Colorado Revised Statutes, requires that the withholding agent withhold for themselves and file the annual report.