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Last Updated: 4/10/2017

Severed Mineral Interests Tax

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Minnesota Statutes 272.039, Minnesota Statutes 272.04, Minnesota Statutes 273.165

 

Definition

Severed mineral interests are those separately owned from the title to surface interests in real estate.  Each year, severed mineral interests are taxed under Minnesota law at 40 cents per acre  times the fractional interest owned. The minimum tax on any mineral interest (usually 40-acre tracts or government lots) regardless of the fractional interest owned, is $3.20 per tract.  No tax is due on mineral interests taxed under other laws relating to the taxation of minerals, such as unmined taconite or iron ore, or mineral interests exempt from taxation under constitutional or related statutory provisions.

Ownership of a specific mineral or group of minerals, such as energy minerals or precious metals rather than an actual fractional interest of all the minerals, does not constitute a fractional interest.  Thus, if one individual reserved all minerals except gas, oil and hydrocarbons, and a second entity reserved the hydrocarbons, each owner would be subject to the full 40 cents per acre tax.

The Severed Mineral Interest Tax is a Property Tax that is levied by local taxing authorities in the same manner as other local Property taxes. Proceeds from the tax are distributed in this manner:  80 percent is returned by the county to local taxing districts where the property is located in the same proportion that the local tax rate of each taxing district bears to the total surface tax rate in the area; and 20 percent to the Indian Business Loan Account in the state treasury for business loans made to Indians by the Department of Employment and Economic Development.

The registration and taxation of severed mineral interests is a county function.  Severed mineral interests are registered with the county recorder in the county where the interest is located. The county auditor sends a tax statement similar to any other real estate interest.  The tax is normally collected in two increments payable in May and October.  If the tax is less than $50, the taxpayer is required to pay in full with the May payment.

Nonpayment Penalty: Forfeiture

The eventual penalty for not paying the tax is forfeiture.  Policies  vary somewhat among counties. Specific questions about the tax, interest or penalties should be directed to the county recorder and auditor in the county where the minerals are located.

Tax Imposed

The tax on severed mineral interests was enacted in 1973 as part of an act that required owners to file a document with the county recorder where the interests were located describing the mineral interest and asserting an ownership claim to the minerals.  The purpose of this requirement was to identify and clarify the obscure and divided ownership conditions of severed mineral interests in the state (M.S. 93.52). Failure to record severed mineral interests within time limits established by the law results in forfeiture to the state according to M.S. 93.55.

History of Litigation

In 1979, the Minnesota Supreme Court ruled that the tax, the recording requirements and the penalty of forfeiture for failing to timely record were constitutional, but also ruled that forfeiture procedures were unconstitutional for lack of sufficient notice and opportunity for hearing. This decision is cited as Contos, Burlington Northern, Inc. U.S. Steel, et al. v. Herbst, Commissioner of Natural Resources, Korda, St. Louis County Auditor, Roemer, Commissioner of Revenue, and the Minnesota Chippewa Tribe, et al., 278 N.W. 2d 732 (1979).  The U.S. Supreme Court refused to hear an appeal requested by the plaintiffs.  Shortly after this decision, the legislature amended the law to require notice to the last owner of record and a court hearing before a forfeiture for failure to timely record becomes complete.  Under these requirements, court orders have been obtained by the state in several counties declaring the forfeiture of particular severed mineral interests to be complete and giving title to the state.

In 1988, the legislature amended the law to allow the commissioner of the Minnesota Department of Natural Resources (DNR) to lease unregistered severed mineral interests before entry of the court order determining the forfeiture to be complete. However, mining may not commence under such a lease until the court determines that the forfeiture is complete.

In a 1983 case, the Minnesota Supreme Court ruled that severed mineral interests owned by the Federal Land Bank of St. Paul were exempt from the state Severed Mineral Interest Tax under a federal law exempting Land Bank real estate from local Property taxes.  The U.S. Supreme Court denied a petition by the State of Minnesota to review the case.

DNR Lease

If someone buys a DNR mining lease of 3 or more years duration, the Severed Mineral Interest Tax of 40 cents per acre applies.  Contact the DNR, Minerals Division, to determine the status of activities under any state metallic minerals lease.

Indian Business Loan Account

The 20 percent portion of the Severed Mineral Interest Tax that is allocated to the Indian Loan Program is reported by the county auditors on the Severed Mineral Interest Return (SMI1).  Normally, the form is submitted twice each year to correspond with payment of Property taxes.

The money deposited in the Severed Mineral Interest Account is distributed to the Indian Loan Program at the end of each month.   

Department of Revenue

The processing and payment of the Severed Mineral Interest Tax is handled by the Special Taxes Division of the Minnesota Department of Revenue, Mail Station 3331, St. Paul, MN 55146-3331.  Phone 651-556-4721.

Loan Program

The Indian Business Loan Program is administered by the Department of Employment and Economic Development, 1st National Bank Building, 332 Minnesota Street, Suite E-200, St. Paul, MN 55101-1351.  Phone: 651-259-7424.