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Revenue Administrative Bulletin 1989-21
REVENUE ADMINISTRATIVE BULLETIN 1989-21
Approved: April 4, 1989
PAYMENTS TO PRODUCERS FOR PROCESSING FEES, SUBJECT TO THE SEVERANCE TAX
RAB-89-21. The purpose of this Bulletin is to clarify whether or not fees paid to a producer to cover costs of putting gas in a marketable condition are to be a part of the “gross cash market value” on which the severance tax is to be based.
The Michigan Severance Tax Act, MCL 205.303(1), provides in part that "…the severance tax required to be paid by each producer … shall be in the amount of 5% of the gross cash market value of the total production of gas…” Whenever any agreements or arrangements are made whereby a common purchaser pays or reimburses a producer for the cost of processing gas to put it in a marketable condition, the excess of any payments or credits over the actual marketing costs shall be included in the gross cash market value that is subject to the tax. Stated differently, any such payments, reimbursements, or credits are to be included in the gross cash value on which the severance tax is paid. A marketing deduction may be allowed for the actual cost to the producer to perform the processing function.
The actual marketing costs in issue are for gas processing operations like compression, sweetening, and dehydration. These costs are to be based on full capacity operation of the processing equipment. The costs must be for processing functions prior to the sales meter or transfer of title to gas to the purchaser, and for processing functions upon which the sale and the sales price are contingent.