Ad valorem tax on mineral rights is a local property tax: the county, school district and other taxing units tax your minerals each year on their appraised value. It is not the severance tax the state takes out of each barrel or mcf. In Texas the local tax office bills you when your mineral rights in a taxing unit are worth $500 or more; some other states replace the tax with a production tax or have the operator withhold it.
What is ad valorem tax on mineral rights?
Ad valorem means "according to value": the tax is a rate multiplied by the appraised value of property. Texas defines real property to include a mineral in place and any interest in it (Tax Code §1.04), so your mineral rights sit on the tax roll like a house or a pasture. The appraisal district only sets the value and does not levy a tax. Each taxing unit, such as the county or school district, sets its own rate (Texas Comptroller, Property Tax Basics, January 2026).
How is ad valorem tax different from severance tax?
Severance tax is charged on production as oil or gas leaves the ground; ad valorem tax is charged once a year on the value of what you own. The operator usually withholds severance tax before your royalty check is written. In Texas, the property tax bill goes to each owner on the tax roll or to the owner's agent. Rates on the production side are in our guide to severance tax by state.
How do Texas appraisal districts value mineral rights?
Texas appraisal districts value producing mineral rights by projecting the income the wells will earn and discounting it to a value today. Tax Code §23.175 sets the starting price: last year's average price for the oil or gas, multiplied by a price adjustment factor the chief appraiser calculates from the federal Energy Information Administration's price outlook. Prices for years two through six can't rise or fall faster than a limit tied to a producer price index.
The Comptroller's Property Tax Assistance Division writes the method, and districts must follow its Manual for Discounting Oil and Gas Income (June 2021). For 2026 the Comptroller set a discount rate range of 13.25% to 23.52% for oil and gas properties (publication 96-1166, June 2026). Property is appraised as of January 1, so the value reflects the mineral rights you own on that date. When minerals change hands, see how to transfer mineral rights so the county records and the operator both show the new owner.
Do small mineral rights pay ad valorem tax in Texas?
Not if they are worth less than $500. Tax Code §11.146 exempts a mineral interest with a taxable value under $500, tested separately in each taxing unit, with all of your mineral interests in that unit added together. The threshold has been $500 since the section took effect on January 1, 1996; we checked the current text on the Texas Legislature's statute site on October 14, 2026. Small mineral rights can be exempt in one school district and taxable in the next.
Who sends the ad valorem tax bill, and when is it due?
The local tax office sends it. Taxing units, or the county tax assessor-collector acting for them, start mailing bills in October, and payment is due on receipt. In most cases Texas property taxes must be paid by January 31 (Texas Comptroller, Paying Your Taxes). Mineral rights in several counties mean a bill from each county. If no bill has arrived by mid-January, the Comptroller advises calling the local tax office.
What happens if you don't pay tax on mineral rights?
Unpaid Texas property taxes become delinquent on February 1. Per the Comptroller:
- February 1: a 6% penalty and 1% interest are added.
- The penalty rises 1% a month, reaching 12% on July 1.
- Interest runs at 1% a month with no stated maximum.
- A taxing unit that hires a private attorney to collect can add up to 20%, plus court costs if it sues.
A tax lien attaches to taxable property every January 1, and a court can order the property sold, even after it has changed hands. A buyer can't get clear title until delinquent taxes are paid, so unpaid bills follow your mineral rights until someone settles them.
How do you protest a Texas mineral value?
File a protest with the appraisal review board by May 15 or within 30 days after the notice of appraised value was mailed, whichever is later. Form 50-132 is the standard notice, but any written notice naming you, the property and the disagreement is enough. If the board's order doesn't satisfy you, you can appeal to district court within 60 days or, depending on the value, to binding arbitration or the State Office of Administrative Hearings. For producing mineral rights, your best evidence is recent check stubs showing falling volumes or a shut-in well.
How does ad valorem tax show on a royalty check?
It depends on who pays. Texas stubs must show production taxes and other deductions (Natural Resources Code §91.502), but because the tax office bills the owner on the roll, you may get the Texas ad valorem tax as a separate bill rather than a stub line. Where the operator pays for owners, as New Mexico's statute requires it to withhold each interest owner's tax (NMSA §7-32-9), your share comes off in the taxes or deductions column. See how to read a royalty check.
How do other states tax mineral rights locally?
Some states levy an ad valorem tax on production; others charge a gross production tax instead of local property tax on producing mineral rights. We list only rules confirmed from a statute, agency or county form.
| State | How minerals are taxed locally | Source |
|---|---|---|
| Texas | Local ad valorem tax on mineral rights as real property; under $500 per taxing unit exempt | Tax Code §1.04, §11.146, §23.175 |
| Oklahoma | Gross production tax paid in lieu of state and local taxes on mineral property rights, producing leases and well equipment | 68 O.S. §1001, as reproduced in HB 3568 (2022) |
| North Dakota | Gross production tax in lieu of property taxes on producing oil and gas rights, leases and equipment | N.D.C.C. §57-51-03 (FindLaw) |
| New Mexico | Ad valorem production tax on products sold from each production unit; operators withhold each owner's share | NMSA §7-32-1 et seq., §7-32-9; NM Taxation and Revenue |
| Wyoming | County ad valorem (gross products) tax on mineral production; producers may withhold it from royalties | WY Revenue Mineral Tax FAQ; SF0139 (2020) |
| Colorado | County ad valorem tax; primary production assessed at 87.5% for 2026; operator represents interest owners | Weld County DS 658 (2026); SB22-026 |
In Oklahoma and North Dakota there is no separate local property tax on producing mineral rights, because the gross production tax withheld from your check stands in for it. In Colorado, a 2022 law makes the operator the assessor's sole contact, so royalty owners dispute values through the operator.
Is ad valorem tax deductible?
Yes, as an expense of the royalty property. The IRS's 2025 Schedule E instructions say to report gross royalty on line 4 even if state or local taxes were withheld and to put taxes withheld by the producer on line 16. A county tax withheld from your check, or a Texas bill you pay yourself on producing mineral rights, reduces taxable royalty income. A CPA can confirm the line; our guide to royalty income taxes covers depletion and the 1099.
When a tax bill makes owners think about selling
A yearly bill on mineral rights that pay little, or delinquent bills on an inheritance, is one reason owners sell. A buyer can't get clear title while taxes are delinquent, so the title review will look for them; see how a mineral rights sale closes. See also selling Texas mineral rights. To learn what your mineral rights are worth before the next bill, get offers from up to three independent buyers active in your county. No fees, no commissions, no obligation.
This guide is general information, not legal or tax advice. Confirm current rates and deadlines with your appraisal district.