April 04, 2005 | By Keith Martin in Washington, DC

WYOMING properly charged severance taxes on coal-bed methane.

Minerals like gas from coal seams are taxed after they are “severed” from the ground. The tax is 6% of market value. The market value is determined at the point where the production process has been  completed. The producer cannot deduct any expenses from the market value that are incurred before that
point in the production process. However, expenses downstream from that point can be deducted.

The state Supreme Court said in March that coal-bed methane should be valued at a point just shy of when the gas goes into a triethylene glycol dehydrator, or TEGD machine. The Wyoming statute says the production process for gas is complete “after extracting from the well, gathering, separating, injecting, and any other activity which occurs before the outlet of the initial dehydrator.” The gas producer in the case argued that the gas should be valued at a point farther upstream. 

The case is Williams Production RMT Co. v. Department of Revenue. The Supreme Court released its  decision on March 2.