Texas Marketing Costs

In Texas there are certain fees that can be deducted from gas revenue before the severance taxes are calculated. Many items can be deducted before the tax calculations, but these items are usually collectively referred to as marketing costs. Since these fees can change or vary by well, setting up a tax table to try and account for these fees is impossible. To allow the proper calculation of taxes, a special expense code can be set up that will be deducted from gross revenue prior to any severance tax calculations. This code would only be used in the case where the purchaser has not withheld the taxes before you receive it, meaning that you are responsible for remitting the gas severance taxes for the well.

Setup:
Code - In order to use this feature an expense code must be set up on the expense codes window with an expense code of "MKTG". It doesn't matter what is specified in the Name or Description as long as the Code is "MKTG".
DOI Class - Leave the DOI Class specified as "Working Int". When the DOI class is "Working Int" the MKTG expense will be allocated to the owner's in the well based on their Gas Revenue Interest.
If the DOI Class is specified as anything other than "Working Int" then the expense will be allocated to the owner's in the well based on their interest in the selected class.

How MKTG affects the Tax Calculation:
During the run closing process if taxes are being calculated from a tax table it will look for any MKTG expenses prior to calculating the "Gas Tax 1". Taxes are calculated by production period so the MKTG charge will only affect taxes calculated for the same production period as was used for the MKTG expense.

How MKTG is allocated to the owners:
By default MKTG expenses will be allocated to the owners based on their Gas Revenue interest. This allows the MKTG expense to be allocated to Royalty owners as well. If you do not want the MKTG to be allocated based on the Gas Revenue Interest then you can specify and expense class of anything except "Working Int" on the expense codes window where the MKTG expense is setup. If anything other than Working Int is specified then the software will allocate the MKTG expense to the owners in the well based on their interest in the selected DOI class. This would only be done if you want to exclude the royalty owner's from the MKTG charges.

Reporting:
The MKTG expenses will appear in the revenue section on the owner statements and well revenue operating summary reports.

Take Note:
The MKTG expense will only affect revenue from the same production period. Make sure that any MKTG charges are processed on the same run as the revenue from the respective production period. If you process the expenses on a different run then it will have no effect on the tax calculation.

Example:
Well No. 1 has gross gas sales of $2,000. There is a tax table defined for Well No. 1 that shows a tax calculation of 7.5% for gas. Based on $2,000 of revenue, the system would calculate $150 of taxes. However, if a marketing charge of $75 is entered for the well using the MKTG code, the system will no longer calculate severance taxes on $2,000, but will instead calculate taxes on $1,925 ($2,000 - $75 = $1,925) for a new tax calculation of $144.38 ($1,925*7.5%=$144.38).