Economic Recovery Tax Act of 1981: its effect on negotiating oil lease bonus payments
The Economic Recovery Tax Act of 1981, with its declining individual income tax rates, has made it more attractive in many cases for both the lessor (landowner) and lessee (oil and gas company) to have bonus lease payments paid and received on the installment basis rather than as a lump-sum. While the reduction in the maximum individual tax rate from 70 percent to 50 percent reduces some of the advantages of installment reporting, many moderate income lessors should still be able to benefit by this strategy. Both the lessor and lessee can utilize equations (1) and (2) when negotiating oil lease bonus payments to maximize their after-tax returns. The equations are flexible enough to allow for analysis of delays rentals, advance royalties, and minimum royalties as well. Since the after-tax discount rate has a significant impact on the resulting present values obtained, caution should be used in determining both the lessor's and lessee's rates. If the lessor and lessee have different discount rates due to alternative investment opportunities, the relative benefits of the lump-sum versus installment strategy may change. (JMT)
- Research Organization:
- Texas AandM Univ.
- OSTI ID:
- 6182764
- Journal Information:
- Oil Gas Tax Q.; (United States), Vol. 31:1
- Country of Publication:
- United States
- Language:
- English
Similar Records
Arthur Young's oil and gas guide
Taxation of oil and gas payments received independent of production
Related Subjects
03 NATURAL GAS
ECONOMIC RECOVERY TAX ACT
ECONOMIC IMPACT
NATURAL GAS INDUSTRY
PETROLEUM INDUSTRY
FINANCIAL INCENTIVES
INVESTMENT
LEASES
ROYALTIES
TAXES
INCOME
INDUSTRY
LAWS
021000* - Petroleum- Legislation & Regulations
020700 - Petroleum- Economics
Industrial
& Business Aspects
030600 - Natural Gas- Economic
Industrial
& Business Aspects
031000 - Natural Gas- Legislation & Regulations