Companies pay a wide range of fees, rates and taxes to extract natural resources in the U.S. The amounts differ depending on what the ownership of the natural resource looks like. We’ll cover some of the major types of payments companies make here. They are usually called ‘revenue’ because they represent revenue to the American public.
Payments to extract natural resources from federal land and waters
When companies extract natural resources on federal onshore lands and the Outer Continental Shelf, they pay revenue to the Department of the Interior (DOI).
In general, companies pay bonuses, rents, royalties, or fees and penalties (if incurred) to ONRR, and in some cases bonuses and rents to the Bureau of Land Management. Royalties, a percentage of the sales value of extracted resources, make up most of the revenue paid to DOI.
Lease holders also pay different fees to the Bureau of Land Management, Bureau of Safety and Environmental Enforcement, and Bureau of Ocean Energy Management, often to reimburse the federal government for costs associated with awarding, administering, and enforcing leases. For extracting locatable hardrock minerals on federal lands, companies pay fees, but not royalties under the Mining Law of 1872.
Payments to extract natural resources from any land or water in the U.S.
Corporate income taxes
Corporations operating in the extractive industries pay taxes to the IRS on their income. These companies pay federal corporate income taxes regardless of whether they extract natural resources from federal, state, or privately held lands, so long as they have a liability. These companies also pay taxes on income from extracting natural resources and processing them into other products and commodities. There are different types of companies operating in these industries, with different ownership structures, and as a result, they are treated as different taxpayers:
- C-corporations with many shareholders who own the company; these companies pays corporate income taxes to the IRS.
- S-corporations with 100 shareholders or less who own the company; shareholders pay personal income taxes to the IRS.
- Partnerships where two or more members own the business; members individually pay income taxes to the IRS.
- Sole proprietorships with one individual owner; the individual owner pays personal income tax to the IRS.
Only income taxes from C-corporations are included in the 2015 USEITI Report.
Other taxes and fees
In the U.S., coal producers must pay a federal coal excise tax when they mine coal (a producer is any person or entity that owns the coal after it’s mined from the ground). Producers pay the tax when the coal is first sold or used. The tax does not apply to lignite or to coal mined in the U.S. for export.
The Abandoned Mine Land (AML) Reclamation Program uses fees paid by present-day coal mining companies to reclaim
Revenue policy provisions
While royalty rates can reach as high as 18.75%, and the federal corporate income tax rate can reach as high as 35% depending on company income, companies may pay less. Revenue policy provisions, including royalty relief and tax expenditures, can result in smaller revenue and tax payments to the federal government to promote other policy goals.
To incentivize companies to produce additional oil and gas on certain leases on the Outer Continental Shelf where extraction is anticipated to be unprofitable, the federal government may grant some lease holders royalty relief. Royalty relief means that these lease holders do not have to pay royalties on some amount of production, or they pay a smaller percentage of royalties, for the oil and gas they extract. There are four situations in which a lease holder may gain royalty relief:
- Leases in deep waters with depths greater than 200 meters in the Gulf of Mexico. (This type of relief has not been offered in several years, though existing leases do include it currently.)
- Leases in shallow waters with depths under 400 meters for deep gas production
- Leases towards the end of their lives in which halving royalties would encourage additional production
- Special cases in which continued production under existing terms is projected to be unprofitable
In some situations, if oil and gas prices rise above certain thresholds, lease holders that previously gained royalty relief must start paying royalties at the regular rate again.
Tax expenditures are defined in the law as “revenue losses attributable to provisions of the federal tax laws which allow a special exclusion, exemption, or deduction from gross income or which provide a special credit, a preferential rate of tax, or a deferral of tax liability.” These exceptions may be viewed as alternatives to other policy instruments, such as spending or regulatory programs.
The Treasury estimates the total dollar amount of each tax expenditure in a given year, and publishes a report of these estimates:
- Fossil fuels: For FY 2013, expensing of exploration and development costs for fuels, totaling $550 million, was the largest of five expenditures. See analysis and estimates of fossil fuel tax expenditures.
- Renewable energy: For FY 2013, the energy investment credit, totaling $2 billion, was the largest of four expenditures. The energy production credit was the second largest, totaling $1.7 billion. See analysis and estimates of renewable energy tax expenditures.
- Nonenergy materials: For FY 2013, the excess of percentage-over-cost depletion for nonenergy minerals, totaling $580 million, was the largest of two expenditures. See analysis and estimates of nonenergy mineral tax expenditures.
The federal budget also includes annual estimates of the net revenue effects of eliminating a wider range of fossil fuel related tax expenditures outlined in United States – Progress Report on Fossil Fuel Subsidies. When added together, eliminating fossil fuel tax expenditures would decrease the U.S. deficit by $4.4 billion a year on average over a 10-year window, per estimates in the White House report, Fiscal Year 2016 Mid-Session Review: Budget of the U.S. Government. The report did not include estimates of the effects of eliminating renewable and nonenergy mineral tax expenditures.
After a payment, what happens to the revenue?
Federal budget process
Once revenue is collected by the federal government, it passes through a series of budgetary gateways before ultimately funding public services and community development. These gateways are described below, and you can explore disbursement data here.
For more details about U.S. and international revenue standards, visit: