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Colorado Supreme Court holds cost of capital deductible for gas severance tax purposes

The Colorado Supreme Court decided a severance tax case on April 25 that has been litigated through the Colorado judicial system for more than a decade. In a case of first impression, the court held that the cost of capital is allowable as a deduction for transportation, manufacturing and processing costs in arriving at taxable income from the sale of natural gas extracted from Colorado. As a result of this decision, Colorado enacted legislation on June 10 to reserve approximately $115 million in tax revenue to fund severance tax refunds to oil and gas companies.

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