Knowledgebase-Severance Taxes

Information Product

Title:Severance Taxes
Summary:MTAS was asked whether municipalities are entitled to levy severance taxes.
Original Author:Hemsley, Sid
Product Create Date:01/04/99
Last Reviewed on::10/28/2016
Subject:Taxes--Severance; Tax collection
Type:Legal Opinion
Legal Opinion:

Reference Documents:

Text of Document: There are three kinds of severance taxes:

1. A severance tax on coal (Tennessee Code Annotated, section 67-7-101 et seq.)

2. A severance tax on sand and gravel (Tennessee Code Annotated, section 67-7-201 et seq.)

3. A severance tax on gas and oil (Tennessee Code Annotated, section 60-1-301 et seq.)

Municipalities are not entitled to levy any of those severance taxes

Severance Tax on Coal

The severance tax on coal is $.20 per ton and is collected and administered by the State of Tennessee. It is “levied for the use and benefit of local governments only,” but it is allocated and paid exclusively to the county from which it is collected. [Tennessee Code Annotated, section 67-7-102; City of Caryville v. Campbell County, 660 S.W.2d 510 (Tenn. Ct. App. 1983).] The county can use the severance tax only for the following specific purposes: “one half () of all revenues collected shall be used for the educational system or systems of the county, and the remaining one-half () of all revenues collected shall be used for highway and stream cleaning systems of the county.

Severance Tax on Sand, Gravel, Etc.

Counties are authorized by resolution to impose a severance tax not to exceed $.15 per ton on sand, gravel, sandstone, chert and limestone. The tax is administered by the Department of Revenue.

Severance Tax on Gas and Oil

There is a severance tax on gas and oil in the amount of 3% of the sales price of such gas and oil. It is levied “for the use and benefit of the state, as well as the county governments...” Two-thirds of the revenues from the tax go to the state, one-third of the revenues to the county government which is the site of the well head for the gas and oil. The state, counties and “any other political subdivision of the state” are expressly prohibited from levying any other tax on gas and oil, “Provided, however, that:

(1) Free gas used by the property owner or tenant under the terms of the lease, unless it be in lieu of cash payment; and

(2) Gas which has been injected into the ground for underground storage and thereafter withdrawn shall not be subject to this, or any other taxation.

Notwithstanding that grammatically-fractured language, it appears clear that neither cities nor counties can levy a severance tax on gas and oil.

Please remember that these legal opinions were written based on the facts of a given city at a certain time. The laws referenced in any opinion may have changed or may not be applicable to your city or circumstances.

Always consult with your city attorney or an MTAS consultant before taking any action based on information contained in this database.