Just To Be Sure ....

North Dakota tax office feels it is getting "most" of the tax that is due from royalties paid to residents from out-of-state. But to be sure (and for other stated reasons), the state made a slight change in tax law that goes into effect January 1, 2014. The Dickinson Press is reporting:

Out-of-state mineral rights holders will be affected by another change.

Most of House Bill 1198 took effect July 1, but a key provision that becomes effective Wednesday will require companies producing at least 350,000 barrels per year of oil or 500 million cubic feet of natural gas to withhold taxes on royalty payments to nonresident individuals or businesses.

More than half of oil royalty payments go to out-of-state residents, said Ryan Rauschenberger, the state’s incoming tax commissioner. The production threshold of 350,000 barrels per year will cover more than 90 percent of the state’s oil production, he said.

Instead of receiving a Form 1099 at the end of the year, out-of-staters receiving royalty payments will have income taxes withheld at the highest marginal rate, which is 3.22 percent for individuals, Rauschenberger said. The state will hold the money until the person files their state income tax return, at which point they may have to pay in or receive a refund.

The change is designed to speed up the collection process and make it easier for nonresidents, some of whom earn so much in royalty payments that their accountants advise them to make estimated quarterly tax payments to avoid getting stuck with a big bill at the end of the year, Rauschenberger said.

“It’s kind of paying as you go instead of waiting to write us one big check,” he said.
It also captures tax revenue from those who may slip through the cracks if they don’t file their 1099s, though Rauschenberger said he believes the state is collecting most of the nonresident royalty income owed to it.

“So, there’s a compliance issue too that this fixes,” he said.

I don't know about you, but a tax bill of $5,000 on April 15th is a sizable bill to pay. So, how much royalty income are we talking about here? Three point two two percent of "what" yields $5,000?

0.0322 x ? = $5,000

Total royalties would equal = $155,000. Rounded down.