C.R.S. § 39-10-106 — Payment of taxes on fractional interests in lands

(1) Where oil, gas, or other hydrocarbon wells or fields belonging to multiple owners are operated as a unit, the owner of each fractional interest in such units shall be liable for the same proportion of the tax levied against the total unit that his net taxable revenues received therefrom bears to the total net taxable revenues received from such unit. In the event a fractional interest owner who takes production in kind does not provide the information to the operator which is required under section 39-7-101 (1.5), such fractional interest owner's tax liability shall be calculated using the net taxable revenues reported by the operator. (2) The unit operator shall collect from the owners of the fractional interests and remit to the treasurer of the county in which the unit is located the tax levied against the entire unit. The unit operator may deduct and withhold from royalty payments or any other payments made to any fractional interest owner, either in kind or in money, the estimated amount of the tax to be paid by such fractional interest owner. Any difference between the estimated tax so withheld and the actual tax payable by any owner of a fractional interest may be accounted for by adjustments in royalty or other payments made to such owner subsequent to the time the actual tax is determined. Failure of the unit operator to remit to the treasurer the tax levied against the entire unit shall make the unit operator liable for such tax. (3) At the request of any unit operator who does not disburse payments to fractional interest owners, the first purchaser shall collect the tax from the fractional interest owners as provided for in this section and transfer such proceeds to the unit operator who shall in turn be responsible for remitting to the treasurer the total tax levied against the entire unit. (3.5) (a) Except as otherwise provided in paragraph (b) of this subsection (3.5), the unit operator shall place in an account in a federally insured bank or savings and loan association located in the state of Colorado which requires two signatures, one of which shall be the signature of the county treasurer of the county in which the unit is located, in order to make a withdrawal, an amount equal to the tax collected from the owners of fractional interests in the unit by the unit operator pursuant to the provisions of this section plus the proportional share of tax levied on the fractional interest in the unit owned by the unit operator. Such account shall be owned by the owners of fractional interests in the unit, but the unit operator shall be responsible for managing such account. The moneys shall be deposited in such account within thirty days from the date the unit operator receives payment for the sale of any oil or gas from such lease. (b) The treasurer may waive the requirement of placing the tax in such account or fund as required in paragraph (a) of this subsection (3.5) and allow the unit operator to file a statement with the treasurer declaring that a sufficient amount of moneys or other assets is available to ensure the payment of the tax if: (I) The unit operator has made timely payment of the tax to the treasurer during the previous three property tax years; (II) The unit operator has been in operation in the county for less than three property tax years and has made timely payment of the tax to the treasurer during such period of time; or (III) The unit operator has been in operation in the county for less than one property tax year. (c) Upon the completion of all production of oil and gas from the unit and after all wells within the unit are plugged and abandoned, all moneys remaining in the account after full payment of all ad valorem taxes due on the unit shall be distributed to the owners of fractional interests in the unit based upon each owner's proportional contribution to the moneys remaining in the account. Any interest accruing to the account shall be credited to the account and shall be distributed with such other moneys in the account as specified in this paragraph (c). (4) (a) Failure of the unit operator or first purchaser to collect the tax as provided in this section shall not preclude the treasurer from utilizing lawful collection and enforcement remedies and procedures against the owner of any fractional interest to collect the tax owed by such owner; but an owner shall not be subject to penalty or interest upon the tax owed unless he fails to remit such tax within twenty days after notification to him by the treasurer of the default of the first purchaser or unit operator. (b) (I) When the tax has been collected from the owners of fractional interests by the unit operator pursuant to the provisions of this section but the unit operator fails to remit such tax collected, the unit operator shall remain liable for the amount of tax owed. The treasurer shall send a notice by registered mail to the first purchaser of the amount of such delinquent taxes and the name of the unit operator owing such delinquent tax. After receiving such notice, the first purchaser shall withhold payments to the unit operator owing the taxes of any of the proceeds of the sale of any oil and gas from such lease. The first purchaser shall remit such withheld payments to the treasurer until the amount of such taxes and penalties are paid in full, after which the first purchaser may resume such payments to the unit operator for such oil and gas. (II) If the first purchaser fails to collect the tax after receiving notice from the treasurer pursuant to the provisions of this paragraph (b) or when the tax has been collected by the first purchaser pursuant to the provisions of this section but the first purchaser fails to transfer the tax to the unit operator pursuant to subsection (3) of this section or to the treasurer pursuant to subparagraph (I) of this paragraph (b), the first purchaser shall remain liable for the amount of tax owed. The treasurer may utilize lawful collection and enforcement remedies and procedures against any first purchaser to collect the amount of such taxes and penalties owed by such first purchaser. (III) The tax liability of the owner of any fractional interest in such unit whose proportionate share of tax was withheld from royalty or working interest payments by the unit operator or the first purchaser but was not remitted by the unit operator or by the first purchaser to the treasurer shall be deemed satisfied to the extent of the amount withheld, and such owner shall not be subject to any collection and enforcement remedies and procedures provided by law for the collection of such delinquent tax for which an amount was withheld from royalty or working interest payments pursuant to the provisions of this section. Any unit operator or first purchaser who has collected the tax from the fractional interest owners pursuant to the provisions of this section but has failed to remit such tax collected commits a class 2 misdemeanor. (IV) Upon audit, the unit operator shall not be liable for any tax or any penalty interest levied against any amount of production taken in kind from the property for which the fractional interest owner taking production in kind provided inaccurate information regarding net taxable revenues to be used for tax reporting. (4.5) (a) If the unit operator fails to remit the proportional share of tax levied on the fractional interest in the unit owned by the unit operator, the treasurer shall send a notice by registered mail to the first purchaser of the name of the unit operator owing such tax and the amount the first purchaser shall withhold from any of the unit operator's proceeds of the sale of any oil and gas from such lease. After receiving such notice, the first purchaser shall withhold payments to the unit operator of any of the proceeds of the sale of any oil and gas from such lease. The first purchaser shall remit such withheld payments to the treasurer until the amount of such tax and penalties are paid in full, after which the first purchaser may resume such payments to the unit operator for such oil and gas. (b) The tax liability of the unit operator whose proportional share of tax levied on the fractional interest in the unit owned by the unit operator was withheld from payments by the first purchaser pursuant to paragraph (a) of this subsection (4.5) but was not remitted by the first purchaser to the treasurer shall be deemed satisfied to the extent of the amount withheld, and such unit operator shall not be subject to any collection and enforcement remedies and procedures provided by law for the collection of such delinquent tax for which an amount was withheld by a first purchaser from oil and gas sale proceeds pursuant to the provisions of this section. (c) If the first purchaser fails to collect the tax or when the tax has been collected by the first purchaser pursuant to the provisions of this subsection (4.5) but the first purchaser fails to transfer the tax to the treasurer pursuant to paragraph (a) of this subsection (4.5), the first purchaser shall remain liable for the amount of tax owed. The treasurer may utilize lawful collection and enforcement remedies and procedures against any first purchaser to collect the amount of such taxes and penalties owed by such first purchaser. (5) For the purposes of this section, unit means any single oil, gas, or other hydrocarbon well or field which has multiple ownership, or any combination of oil, gas, or other hydrocarbon wells, fields, and properties consolidated into a single operation, whether by a formal agreement or otherwise; owner means the holder of any interest or interests in such properties or units, including royalty interest; and first purchaser means either the first purchaser to buy oil or gas from a new producing well or the current purchaser of oil or gas from a producing well. Source: L. 64: R&RE, p. 717, § 1. C.R.S. 1963: § 137-10-6. L. 69: p. 1121, § 3. L. 71: p. 1247, § 1. L. 79: p. 1418, § 3. L. 87: (3.5) and (4.5) added and (4) amended, p. 1419, § 1, effective May 20. L. 88: (3.5)(a), (3.5)(c), and (4)(b)(III) amended and (3.5)(b) R&RE, p. 1309, §§ 2, 1, effective April 14; (4)(b)(III) amended, p. 1437, § 38, effective June 11. L. 93: (1) and (3.5)(c) amended and (4)(b)(IV) added, pp. 242, 243, §§ 3, 4, effective March 31. L. 99: (1) amended, p. 629, § 41, effective August 4. L. 2021: (4)(b)(III) amended, (SB 21-271), ch. 462, p. 3294, § 690, effective March 1, 2022.