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Oil & Gas Privilege Tax

  • Oil & Gas Privilege Tax


Sections 40-20-1 through 40-20-13, and 40-20-20 through 40-20-23, Code of Alabama 1975.

Engaging in the business of producing or serving oil or gas within the state.

4% Privilege

  • Oil wells producing 25 BBLS or less per day.
  • Gas wells producing 200 MCF or less per day
  • Incremental production from qualified enhanced recovery projects and supplemental enhanced recovery projects approved by State Oil and Gas Board.

6% Privilege

  • Offshore wells, at depths of less than 8,000 feet below main sea level, producing volumes greater than 200 MCF or 25BBLs per day.
  • Onshore wells permitted on or after July 1,1988, except those qualifying for lower tax rates.

8% Privilege

  • Tax on all other taxable production not covered under above provisions.

3.85% Privilege

  • Offshore wells producing from depths greater than 8,000 feet below mean sea level, computed as a percentage of gross proceeds.

Reduced Privilege Tax

Any well permitted between July 1, 1996, and July 1, 2002, that is not a replacement well, will qualify for a 50% tax rate reduction for five years from first production.

Natural gas lawfully injected into oil or gas pools, or reservoirs in the soil, or beneath the soil or waters of the state for the purpose of lifting oil or gas is exempt from this tax. However, if any gas injected is sold or injected into underground storage facilities, that gas shall not be exempt from this tax. Natural gas lawfully vented or flared in connection with the production, treatment, or processing of oil or gas is exempt from the tax.

File return and remit payment to ALDOR, Business and License Tax Division, Severance and License Section, by the 15th day of the second month following production.


25%-General Fund

75%-Distributed as follows:

  • 16-2/3% – General Fund.
  • 16-2/3% – Counties where severed.
  • 66-2/3% – Distributed as follows
    • 25% – Counties where severed.
    • 10% – Municipalities where severed.
    • First $150,000 of remainder:
      • 50% – State General Fund.
      • 42.5% – Counties where severed.
      • 7.5% – Municipalities.
    • Remainder:
      • 84% – State General Fund.
      • 14% – Counties where severed.
      • 2% – Municipalities.


90% – General Fund.

10% – Counties where severed.