Non resident Ohio state taxes on mineral lease royalties

[user17733711944]

If I live in a state without state income taxes and received mineral rights lease royalty payments and 1099 MISC for Ohio, and they deducted severance taxes and advalorum from the royalty payments, do I have to submit a state income tax return for Ohio and what state taxes do I have to pay?

[RobertB4444 · Accepted solution]

Yes, in order to get a refund of this withheld income tax you're going to have to file an Ohio income tax return.  After you have prepared your federal return you can go to the state return section and ask the program for an Ohio Non-resident return.  

You are taxed in Ohio on any Ohio source income - which in this case is just the royalties on this form - so once you have walked through the return the system will figure out whether you have a refund or not of any of the taxes they withheld.

[user17733711944]

Refund?  I assume I will have to pay state income taxes on the royalty and would not expect the severance and ad valorum that was deducted to be refunded.  Why would there be a refund?

[DianeW777]

It's very likely tax will be due. It will not be refunded since it's not Ohio (OH) state income tax withholding. Ohio uses a method that effectively divides non-Ohio income by total income to determine a credit, ensuring tax is only paid on Ohio-sourced income. Ohio calculates tax on your total federal adjusted gross income (AGI) and then applies a nonresident credit based on the ratio of non-Ohio income to total income

• They are distinct types of taxes: severance taxes are excise taxes on extracted resources paid to the state, while ad valorem taxes are property taxes based on value paid to local counties.

@user17733711944 

[user17733711944]

We unexpectedly received the royalty payment in December 2025, (due to probate results).  Now, I am trying to complete the Ohio return and it says we will owe a penalty for not paying estimated income taxes for Ohio.  We did not know we were going to have this income from Ohio royalty payment, so we could not have known to pay estimated state income taxes.  We did make federal estimated income tax payments for wages where we live in Texas, but no state payments because Texas has no state income tax.  How can we be liable for not making estimated income tax payments for something we received at the end of December that we were not expecting?

Also, Turbo Tax is saying that we can deduct depletion from the royalty in addition to the advalorum and other things the producer deducted from our payment.  I thought we could not deduct depletion when we are not the producer, just one of many mineral rights holders who received their portion of royalties, (after production expenses and taxes deducted).  Can we deduct depletion?  Can I also deduct depletion on royalties for a non-participating interest of mineral rights ownership in Texas?

[DianeW777]

Yes, you can deduct depletion which at the closest percentage rate shown below, based on the type of mineral being extracted. Then this rate is multiplied by the amount you received as royalty. You can enter this under 'Other or Miscellaneous' expenses,

Common Mineral Depletion Rates (Percentage of Gross Income)

• 22%: Sulphur, uranium, and several minerals if mined in the U.S. (e.g., asbestos, lead, zinc, nickel).
• 15%: Oil and gas wells, gold, silver, copper, and iron ore.
• 14%: Metal mines (non-gold/silver/copper/iron), rock asphalt, and vermiculite.
• 10%: Coal, lignite, asbestos, perlite, and sodium chloride.
• 5%: Sand, gravel, peat, pumice, shale, and stone

My advice would be first to review the annualized method while in the state return.  Ohio generally allows taxpayers to use an annualized method to calculate or reduce interest penalties for the underpayment of estimated taxes, similar to federal rules. This method helps avoid penalties if income is received unevenly, in your case at the last quarter, throughout the year. This could reduce or even eliminate the penalty.

If you would rather, file the Ohio (OH) nonresident return without paying any penalty. When you receive a letter from OH, you can explain you were not sure you would resolve or settle this probate before January, 2026. 

• 2025 OH IT/SD 2210 (an example to review).

@user17733711944