FILING SEVERANCE TAX RETURNS

RAB-89-14. The purpose of this Bulletin is to explain the requirements for the filing of severance tax returns.

The Michigan Severance Tax Act, MCL 205.302(l), requires every corporation, association, person, common carrier, pipe line company or common purchaser who receives, purchases or transports severed oil or gas to make a report on or before the 25th day of each month showing the amount of oil and gas received, purchased, stored or transported during the preceding month. Other information such as the value of the severed oil and gas is also required to be reported. Michigan severance tax returns that are not filed timely by the 25th of the month following the production and/or sale of the severed product are subject to the late filing penalty and interest provisions of the Michigan Revenue Act, MCL 205.1 et seq.

Due to the nature of the industry of severing gas and oil from the soil, it may be difficult for a taxpayer to gather the needed data to allow a timely filing of the return. Consideration should be given to the following filing procedures as a solution of this situation:

1. File a current return timely with an estimated tax payment equal to one month's average tax liability, i.e., file the August 1987 return with a payment equal to the last 12-month average monthly payment.
2. File the September 1987 return timely based upon the actual production/sales for August 1987 with a payment of the tax shown due, and so on.
3. The Department will require the taxpayer to conduct periodic reviews of this procedure. If the average monthly liability reaches an amount greater than the above-determined estimated payment, then the estimate will be adjusted accordingly.

A taxpayer may elect to use the above method to assure the timely filing of the severance tax return and payment of the severance tax. The election is made by the taxpayer signing a letter to this effect indicating the above terms and the amount of the estimated payment. This letter must be mailed to the Administrator of the Severance Tax at the following address:

Motor Fuel, Cigarette and
Miscellaneous Taxes Division
Treasury Building
Lansing, Michigan 48922