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Revenue Administrative Bulletin 1989-13

Approved: April 4, 1989



RAB-89-13. The purpose of this Bulletin is to clarify the taxability, for severance tax purposes, of native natural gas found in reservoirs that have been injected with previously severed gas.

The Michigan Severance Tax Act, MCL 205.301, levies upon each producer engaged in the business of SEVERING FROM THE SOIL oil or gas, a specific tax known as the severance tax. Any person extracting or producing gas from the soil and sharing in kind or in the monetary value realized on such extraction or production is a producer and is subject to the severance tax. [Severance Tax Act, MCL 205.312(2)]

It is a common practice in Michigan to use an existing gas well or gas field for the storage of previously severed or purchased natural gas. When this previously severed gas is extracted for sale to customers or for further processing, it is not subject to the severance tax because it is not being produced as defined in the Act. However, these gas fields generally contain native gas, or gas as found in nature, that has not been previously severed from the soil. The production or extraction of native gas is subject to the Michigan severance tax. This presents a question as to when and how the determination is made that the owner or producer is extracting untaxed native natural gas.

The extraction or production of native gas occurs at the time the reserve of native gas, if known, is reduced. If the reserve of native gas is not known, then the native gas production occurs at the time the withdrawals from the storage exceed the volume of previously severed or purchased gas injected into the well.

The extractor or producer of this native gas, as defined in the Michigan Severance Tax Act, MCL 205.312(2), is the person responsible for the payment of the severance tax when this native gas is severed.