What Florida severance-tax rate applied to oil produced through the taxpayer's certified tertiary-recovery project?

Plain-English summary

The company produced Florida oil through a certified tertiary recovery process at an active enhanced-recovery project. Florida law imposed severance tax when oil was removed for sale, transport, storage, profit, or commercial use.

The Department classified the resulting production as tertiary oil and applied the then-stated rate of 5% of gross value at the point of production. The ruling contrasted that rate with the 8% rate then stated for other oil.

What this means for you

The reduced rate depended on the production qualifying as tertiary oil from a qualified recovery project, not merely on the operator using some enhanced-production technique.

Common questions

What rate did the ruling apply? 5% of gross value at production.

Why did that rate apply? The oil came from a certified qualifying tertiary-recovery project.

Is the 2009 rate necessarily current? No. The ruling itself warns that later statutory or rule changes may alter the result.

Citations and references

• Fla. Stat. § 211.02 and Fla. Admin. Code r. 12B-7.004(1)(b), as discussed in the advisement.

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 09B7-001

Original ruling text

SUMMARY
QUESTION:
What is the correct rate of tax to be collected on the severance of Taxpayer’s oil?
ANSWER:
Taxpayer severs oil using a certified tertiary method. Therefore, Taxpayer’s tertiary oil
severance shall be taxed at five percent (5%) of gross value at the point of production.
May 11, 2009
XXX
Re:

Technical Assistance Advisement 09B7-001
XXX Oil
Severance Tax
Section 211.02, Florida Statutes (“F.S.”)
Rule 12B-7.004, Florida Administrative Code (“F.A.C.”)
XXX (“Taxpayer”)
FEIN: XXX

Dear XXX:
This is in response to your letter hand delivered April 14, 2009, requesting this Department’s
issuance of a Technical Assistance Advisement (TAA) pursuant to Section 213.22, F.S., and
Rule Chapter 12-11, F.A.C., regarding the above referenced matter and parties. An examination
of your letter has established that you have complied with the statutory and regulatory
requirements for issuance of a TAA. Therefore, the Department is hereby granting your request
for a TAA.
FACTS
Your letter provides in part:
Taxpayer is an oil and gas XXX company that owns XXX% of the working interest in
the XXX and associated facilities (collectively, the [“Field”]). . . .
XXX recovery of the oil from the [Field] commenced in 19XXX. XXX recovery
involves displacement of oil from reservoir rock by modifying the properties of the fluids
in the reservoir or providing energy and drive mechanisms to force oil to flow to
production wells. The XXX process used at the [Field] is a “XXX XXX XXX”
process (“XXX Process”). XXX is pumped into the reservoir in the miscible zone where
the lighter ends of the oil or lower carbon atoms in the chain are vaporized when coming into
contact with the XXX. Water then displaces the vaporized oil in a piston-

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like displacement, and the vaporized oil can be produced through a wellbore. The XXX
Process is repeated until residual oil saturation is reached.
This production method in the [Field] has been certified as XXX beginning in XXX, and
continues to be certified as XXX. (See the attached XXX XXX and Associates
certification letter dated XXX). The certification letter states at page three that:
“We find that [Field] is still an active XXX [XXX] project as of XXX, with significant
XXX oil production. The miscible nitrogen XXX injection project initiated by
[Company A] and continuing to be utilized by [Taxpayer] is
considered to be an
XXX process by the industry.” Also attached is a copy of the XXX, study referenced in
the certification letter.
ISSUE
What is the correct rate of tax to be collected on the severance of Taxpayer’s oil?
ADVISEMENT REQUESTED
Your letter provides in part:
Taxpayer is severing oil in Florida at the [Field]. Taxpayer has utilized an acknowledged
XXX recovery process (the XXX Process) since acquiring an interest in the [Field]
in late XXX. The XXX Process as used in the [Field] has also been certified by
Netherland Sewell and Associates as a XXX recovery process. Thus, Taxpayer fits
squarely within the provisions of s. 21l.02(1)(a), Florida Statutes, and severance tax is
due at the rate applicable to the production of oil using a XXX process (XXX%).
APPLICABLE AUTHORITY
Section 211.02, F.S., provides in part:
An excise tax is hereby levied upon every person who severs oil in the state for sale,
transport, storage, profit, or commercial use. Except as otherwise provided in this part,
the tax is levied on the basis of the entire production of oil in this state, including any
royalty interest. Such tax shall accrue at the time the oil is severed and shall be a lien on
production regardless of the place of sale, to whom sold, or by whom used and regardless
of the fact that delivery of the oil may be made outside the state.
(1) The amount of tax shall be measured by the value of the oil produced and saved or
sold during a month. The value of oil shall be taxed at the following rates:
(a) Small well oil and XXX oil, XXX percent of gross value; and
(b) All other oil, XXX percent of gross value.

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(3)(a) The term "XXX oil" means the excess barrels of oil produced, or estimated to be
produced, as a result of the actual use of XXX recovery methods in a qualified XXX
recovery project, over the barrels of oil which could have been produced by continued
maximum feasible production methods in use prior to the start of XXX recovery. A
"qualified XXX recovery project" means a project for enhancing recovery of oil which
meets the requirements of s. 4993(c), Internal Revenue Code of 1954, as amended, or
substantially similar requirements.
(b) The department may establish the method to be used by producers to determine the
taxable production of XXX oil and may require a producer or operator to furnish any
information the department deems necessary for this purpose.
Rule 12B-7.004(1)(b), F.A.C., provides in part:
(1) Oil.

(b) All wells capable of producing less than 100 barrels of oil per day or oil produced by
XXX methods shall be taxed at the rate of 5 percent of the gross value at the point of
production.
RESPONSE
Florida law provides an excise tax on every person who severs oil in the state for sale, transport,
storage, profit, or commercial use. Section 211.02, F.S. Small well oil and XXX oil are
currently taxed at the rate of five percent (5%) of gross value. All other oil is taxed at eight
percent (8%) of gross value.
Taxpayer produces oil via a qualified XXX recovery project. Therefore, Taxpayer’s XXX oil is
subject to the severance tax at the rate of five percent (5%) of gross value at the point of
production.
This response constitutes a Technical Assistance Advisement under Section 213.22, F.S., which
is binding on the Department only under the facts and circumstances described in the request for
this advice as specified in Section 213.22, F.S. Our response is predicated on those facts and the
specific situation summarized above. You are advised that subsequent statutory or administrative
rule changes, or judicial interpretations of the statutes or rules, upon which this advice is based,
may subject similar future transactions to a different treatment than expressed in this response.
You are further advised that this response, your request and related backup documents are public
records under Chapter 119, F.S., and are subject to disclosure to the public under the conditions
of Section 213.22, F.S. Confidential information must be deleted before public disclosure. In an
effort to protect confidentiality, we request you provide the undersigned with an edited copy of
your request for Technical Assistance Advisement, the backup material and this response,

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deleting names, addresses and any other details which might lead to identification of the
taxpayer. Your response should be received by the Department within 15 days of the date of this
letter.
Sincerely,

H. French Brown, IV
Attorney
Technical Assistance and Dispute Resolution
(850) 922-4708
Record ID: 64057