Colorado Severance Tax: Rates, Credits, and Penalties

The Colorado severance tax is a state tax on companies that extract non-renewable resources — oil, gas, coal, metallic minerals, molybdenum, and oil shale — from land in Colorado.¹ Each resource has its own rate structure, its own credits and exemptions, and its own filing form, so what you owe depends almost entirely on which resource you produce and how much income or tonnage it generates. The rules have shifted recently for oil and gas and for coal, and the penalties for getting it wrong are heavier than most operators expect.

What Triggers the Tax

Six categories of production fall under the severance tax: oil and gas, coal, metallic minerals (gold, silver, and similar ores), molybdenum, and oil shale.¹ Oil and gas accounts for most of the revenue the state collects. Each category sits in its own statutory section with its own math.

Rates by Resource

Oil and Gas

Oil and gas severance tax climbs with gross income from sales:

Under $25,000: 2%
$25,000 to under $100,000: 3%
$100,000 to under $300,000: 4%
$300,000 and over: 5%

The tier applies to the full gross income, not just the amount above the threshold. A producer with $80,000 in gross income pays 3% on the whole $80,000; a producer at $5 million pays 5% on the whole $5 million.²

Coal

Coal is taxed at a flat 36 cents per ton, whether the mine is surface or underground.³ Before January 1, 2026, underground producers received a credit against this rate and all coal producers got a quarterly tonnage exemption on their initial production. Both provisions expired at the start of 2026. Coal producers now owe the full 36 cents on every ton.

Metallic Minerals

Gold, silver, and similar metallic minerals are taxed at 2.25% of gross income, applied only to income above $19 million. The first $19 million is exempt. A credit for property taxes paid on producing mines is available, capped at 50% of the computed severance tax.⁴

Molybdenum

Molybdenum ore is taxed at 5 cents per ton, with the first 625,000 tons produced each calendar quarter exempt.⁵

Oil Shale

Oil shale is taxed at 4% of gross proceeds from each commercial facility, phased in over the facility’s first four years at 25%, 50%, 75%, and then 100% of the rate. The first 15,000 tons per day of oil shale, or 10,000 barrels per day of shale oil, whichever is greater, is exempt.⁶

Oil and Gas Credits and Exemptions

Two provisions can substantially reduce what an oil and gas producer actually pays. Both have moved in recent years, and operators working from older numbers can easily overpay or underpay.

Ad Valorem Credit

The ad valorem credit lets oil and gas companies offset their severance tax by a share of the local property taxes they pay on leaseholds and royalty interests, so the same production is not fully taxed at both the state and local level. For tax years before 2024, the credit equaled 87.5% of qualifying property taxes. HB 23-1272 cut it to 75% for tax years 2024 and 2025.²

Starting in tax year 2026, the calculation changes form. Rather than a flat percentage of property taxes paid, the credit for each well is derived from a formula that multiplies gross income by the combined local mill levy rate at the well’s location, scaled by a fixed coefficient.² The additional revenue produced by shrinking the credit is directed into the Decarbonization Tax Credits Administration Cash Fund through fiscal year 2026-27.⁷

Stripper Well Exemption

Low-producing wells are completely exempt. A well qualifies as a stripper well if it averages 15 barrels per day or less of oil, or 90,000 cubic feet per day or less of gas, across all producing days during the tax year.² No ad valorem credit can be claimed against severance tax on production that qualified under the exemption, since there is no severance tax to offset.

Filing Deadlines and Forms

Most severance tax returns are annual, due April 15 for calendar-year taxpayers, or the 15th day of the fourth month after the close of a fiscal year. That applies to oil and gas (Form DR 0021), metallic minerals (Form DR 0020A), and coal (Form DR 0020C). Molybdenum is the exception: quarterly returns are due April 15, July 15, October 15, and January 15.⁸

Extensions are available but do not stop penalties on their own. If less than 90% of the net tax liability is paid by the original due date, penalty and interest run from that date even if an extension was granted.

Penalties for Non-Compliance

Colorado treats failure to file or pay differently from errors on a filed return, and treats both differently from willful evasion. The size of the exposure depends on which category the conduct falls into.

Failure to File or Pay

Failing to file a return or pay the tax owed carries a penalty of 30% of the assessed tax, or $30, whichever is greater, plus interest from the original due date until payment.⁹ Failure to withhold income as required carries the same 30% penalty, with an exception for wells that qualified for the stripper well exemption in the prior tax year.

Negligent Errors on Filed Returns

If a return was filed but contained errors from negligence or disregard of the law, the penalty is 10% of the additional tax assessed, plus penalty interest of 0.5% per month on top of the standard interest rate.⁹ The 30% penalty is for not filing or not paying at all; the 10% penalty is for filing with careless numbers.

Willful Evasion

Deliberate evasion is prosecuted under Colorado’s general tax enforcement statutes. Willful evasion is a felony, with fines up to $100,000 for individuals or $500,000 for corporations, plus imprisonment and prosecution costs.¹⁰ A lesser willful violation, such as deliberately failing to file or keep required records, is a misdemeanor carrying fines up to $50,000 for individuals or $100,000 for corporations and up to one year of imprisonment. The Department of Revenue can also place liens on company assets or seize property to collect unpaid taxes.

Federal Tax Interactions

Severance tax paid to Colorado is generally deductible as a business expense on a federal return, which lowers its effective cost. Owners of mines, oil and gas wells, and other natural deposits may also claim a federal depletion allowance.¹¹ For oil and gas, percentage depletion is 15% of gross income from the property, capped at 65% of the taxpayer’s net income from that property, with the cap expanded to 100% for marginal wells producing under 15 barrels per day. When property is leased, the depletion deduction is split equitably between lessor and lessee. These federal provisions do not reduce the Colorado tax itself, but they change the net cost of production enough to matter when running the numbers.

1
Colorado Secretary of State. 1 CCR 201-10 – Severance Tax
2
Justia. Colorado Code 39-29-105 – Tax on Severance of Oil and Gas
3
Justia. Colorado Code 39-29-106 – Tax on the Severance of Coal
4
Justia. Colorado Code 39-29-103 – Tax on Severance of Metallic Minerals
5
Colorado Department of Revenue. Molybdenum Ore Severance Tax
6
Justia. Colorado Code 39-29-107 – Tax on Severance of Oil Shale
7
Colorado General Assembly. Severance Tax
8
Colorado Department of Revenue. Colorado Taxes and Fees Due Date Guide
9
Justia. Colorado Code 39-29-115 – Penalties and Interest
10
Justia. Colorado Code 39-21-118 – Criminal Penalties – Repeal
11
Office of the Law Revision Counsel. 26 US Code 611 – Allowance of Deduction for Depletion