Mineral rights represent ownership interest in natural resources such as coal, oil, natural gas, lead, copper, gravel, stone or other minerals or ores which are normally underground. If the participant owns the land to which the mineral rights pertain, the current market value of the land can be assumed to include the value of the mineral rights.
If the participant does not own the land in which his or her mineral rights pertain, request a current market value estimate of the ownership interest in the mineral rights from the participant. The estimate should be from a knowledgeable source such as, but not limited to:
- the Bureau of Land Management;
- the U.S. Geological Survey;
- any mining company that holds leases
If an estimate provides a range rather than a single amount, the lower end of the range should be used as the current market value.
Income from mineral rights interests are considered royalties if the payments are:
- made under an agreement whereby the owner of the mineral rights authorizes another person or company to manage and extract a product; and
- in an amount that is dependent on the amount of the product actually extracted.
Use the gross amount of a royalty payment when income taxes or windfall profit taxes are removed to determine the net payment to the participant.
Use the net amount of a royalty payment when a production or severance tax are removed to determine the net payment to the participant.