Revenue Administrative Bulletin 1989-19

Approved: April 4, 1989

NOTICE TO COMMON PURCHASER OF MARKETING
DEDUCTIONS FOR USE IN DETERMINING THE
WELLHEAD VALUE FOR SEVERANCE TAX COMPUTATIONS

RAB-89-19. The Michigan Severance Tax Act, MCL 205.303(l), requires the common purchaser to deduct (withhold) the severance tax from the price paid to the producer. When there are conditioning and/or plant facilities between the wellhead and the sales meter, the purchase price may not be the proper basis for computing the tax. This is because certain marketing costs may be allowed as deductions (deducts) from the selling price to arrive at the wellhead, or taxable, value.

The Department will allow the producer to provide the common purchaser with the allowable deducts for marketing costs to be used in completing the common purchaser's severance tax report. Such notice may also be used to inform the common purchaser of any exempt interest holders as provided for in Section 3 of the Act, MCL 205.303 (i.e., production attributable to the state, etc.).

The purchaser shall not accept any deducts or exempt interest claims by the producer without prior approval by the Department. This approval is to be obtained by submitting a separate letter (detailing the request for deductions or exemptions from the sales/purchase price per thousand cubic feet/british thermal units (MCF/BTU). This letter request is to be sent to:

Administrator
Motor Fuel, Cigarette and
Miscellaneous Taxes Division
Michigan Department of Treasury
Treasury Building, 2nd Floor
Lansing, Michigan 48922