Land owners will have to pay taxes on the majority of the revenue that they receive from PDC including the following:
- Rental payments
- Lease bonus payments
- Delay rental payment
- Right-of-way payment (partially taxable; based upon landowner’s tax basis in property subject to the right-of-way)
- Damages (fully or partially taxable; based upon nature of the damages and tax basis of landowner): For example: Crop damage payments are taxable income because the damage payment is replacing income that would have been received from the sale of crops. Taxable income from damage payments for timber or property is dependent on whether any landowner tax basis can be allocated to the timber or property that was damaged. Contact your tax advisor for assistance with these determinations.