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Revenue Administrative Bulletin 1989-18
REVENUE ADMINISTRATIVE BULLETIN 1989-18
Approved: April 4, 1989
SEVERANCE TAX - MARKETING COSTS
RAB-89-18. The Michigan Severance Tax Act, MCL 205.303(1), provides that the value (tax value) of ALL production of oil and gas shall be computed at the wellhead. If the market is away from the wellhead, there may be marketing costs allowed as deductions (deducts) from the selling price determined at such time as title to the severed product transfers to the purchaser of the oil or gas. The deducts may be used to arrive at the wellhead value. The following position of the Michigan Department of Treasury is directed at gas production as the marketing costs are nil for Michigan oil and condensate.
When the gas conditioning equipment is owned and operated by the producer, the thousand cubic feet (MCF) unit marketing cost computation is to be based on FULL CAPACITY operation of the equipment. This includes such conditioning equipment as dehydrators, sweeteners, and compressors. Normal lease separation IS NOT a marketing cost and the required equipment up to and through lease separation shall not be included in the marketing cost computations.
When a gas plant is owned and operated by the producer and the first sale of the gas is after the tailgate of such plant, the marketing costs are to be based on FULL CAPACITY operations of the plant. It is understood that the selection of conditioning equipment and gas plant equipment capacities may, for economic reasons, be based on anticipated future increases in the production volumes.
When the producer is under an arm's length agreement to pay a third-party fee plant operator for gas processed prior to the first sale, the fee is a marketing cost. The allowable deduction for this marketing cost is the actual fee paid on either a flat fee basis or a sliding scale fee basis, NOT TO EXCEED 50 cents per MCF.