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 within the state.¹ Each resource has its own rate structure, its own credits, and its own filing form, so what you owe depends entirely on what you pull out of the ground and how much of it. Revenue is split evenly between the Department of Natural Resources and the Department of Local Affairs.²

What Gets Taxed

Six categories of non-renewable resources trigger the tax: oil, gas, coal, metallic minerals (gold, silver, and similar ores), molybdenum, and oil shale.¹ Oil and gas production drives the largest share of collections by a wide margin. Each category sits in its own statutory section with its own math, so a company producing more than one resource files more than one return.

Rates by Resource

Oil and Gas

Oil and gas use a progressive rate keyed to the producer’s 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%

A producer with $80,000 in gross income pays 3%. A large producer with income above $300,000 pays 5% on the full amount.³

Coal

Coal is taxed at a flat 36 cents per ton, whether surface-mined or underground.⁴ The underground-mine credit and the quarterly tonnage exemption that used to soften this rate both expired on January 1, 2026. Every ton now pays the full 36 cents.

Metallic Minerals

Metallic minerals are taxed at 2.25% of gross income, but only on the amount above $19 million. The first $19 million is exempt. A credit for property taxes paid on producing mines can offset up to 50% of the computed severance tax.⁵

Molybdenum

Molybdenum ore is taxed at 5 cents per ton, with the first 625,000 tons produced each calendar quarter exempt.⁶

Oil Shale

Oil shale is taxed at 4% of gross proceeds from each commercial facility, phased in over four years: one-quarter of the rate in year one, half in year two, three-quarters in year three, and the full 4% starting in year four. Production of the first 15,000 tons per day of oil shale, or 10,000 barrels per day of shale oil (whichever is greater), is exempt.⁷

Credits and Exemptions That Actually Change the Bill

Two provisions do most of the work for oil and gas operators, and both have shifted recently. Assumptions carried over from earlier years can lead to real dollar mistakes.

Ad Valorem Tax Credit

The ad valorem credit offsets state severance tax by a portion of the local property taxes an oil and gas company already pays on leaseholds and royalty interests, so the same production isn’t fully taxed twice. For tax years before 2024, the credit was 87.5% of qualifying property taxes. HB 23-1272 dropped it to 75% for tax years 2024 and 2025.³

For the 2026 tax year the calculation changes again. Rather than a flat percentage of property taxes paid, the credit for each well is computed by multiplying that well’s gross income by the combined local mill levy at the well’s location, scaled by a fixed statutory coefficient.³ The added revenue from the credit reduction is being channeled into the Decarbonization Tax Credits Administration Cash Fund through fiscal year 2026-27.²

Stripper Well Exemption

Low-producing wells are fully exempt. A well qualifies if it averages 15 barrels per day or less of oil, or 90,000 cubic feet per day or less of gas, over all producing days in the tax year.³ No property tax credit is allowed against severance tax for production that qualifies for this exemption; the exemption removes the tax, not just some of it.

Filing Deadlines and Forms

Most severance tax returns are annual, due April 15 for calendar-year filers, or the 15th day of the fourth month after the close of a fiscal year. That covers oil and gas (Form DR 0021), metallic minerals (Form DR 0020A), and coal (Form DR 0020C).

Molybdenum is the exception. It files quarterly, with returns due April 15, July 15, October 15, and January 15.⁸

Extensions are available, but they do not stop penalties from running unless at least 90% of the net tax liability is paid by the original due date.

Penalties for Getting It Wrong

The penalty depends on what went wrong, and the gap between categories is large enough to matter.

Failure to File or Pay: 30%

If you don’t file a return or don’t pay the tax owed, the penalty is 30% of the assessed tax or $30, whichever is greater, plus interest running from the original due date.⁹ For a small producer, that 30% can dwarf the tax itself. Failing 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 a Filed Return: 10%

If you filed but the numbers were wrong through 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 attaches to not filing or not paying. The 10% penalty attaches to filing something inaccurate.

Willful Evasion: Criminal

Deliberately evading severance tax 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 Willfully failing to file a return or keep required records is a misdemeanor, with 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 lien company assets or seize property to collect unpaid tax.

Federal Royalties and Federal Deductions

State severance tax isn’t the only extraction-related payment tied to Colorado production, and it isn’t the last word on what a producer actually pays.

When companies produce oil, gas, or minerals on federal land inside Colorado, they pay royalties to the federal government. Under the Mineral Leasing Act, 50% of those royalties come back to the state, 40% goes to the federal Reclamation Fund, and 10% goes to the U.S. Treasury, with a 2% administrative fee on the state’s share. For production on Native American lands, 100% of collected royalties are returned to the relevant tribes, nations, or individuals.¹¹ Colorado directs part of its share into the Energy and Mineral Impact Assistance Fund, the same fund that receives severance tax revenue for local impact.¹²

On the federal return, state severance taxes paid are generally deductible as a business expense. Producers may also claim a federal depletion allowance under 26 U.S.C. § 611.¹³ 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. Where a property is leased, the deduction is split equitably between lessor and lessee. None of this reduces the Colorado severance tax owed, but it changes the after-tax picture enough to matter when running the numbers on a well.

1
Colorado Secretary of State. 1 CCR 201-10 – Severance Tax
2
Colorado General Assembly. Severance Tax
3
Justia. Colorado Code 39-29-105 – Tax on Severance of Oil and Gas
4
Justia. Colorado Code 39-29-106 – Tax on the Severance of Coal
5
Justia. Colorado Code 39-29-103 – Tax on Severance of Metallic Minerals
6
Colorado Department of Revenue. Molybdenum Ore Severance Tax
7
Justia. Colorado Code 39-29-107 – Tax on Severance of Oil Shale
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 Natural Resources Revenue. Disbursements
12
Colorado Division of Local Government. Energy/Mineral Impact Assistance Fund
13
Office of the Law Revision Counsel. 26 US Code 611 – Allowance of Deduction for Depletion