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Does A Landowner Have To Pay Delinquent Real Estate Taxes When The Landowner’s Oil And Gas Rights Are Sold?

By Paul R. Yagelski, Esq.

A landowner owns oil and gas rights.  An offer is made to purchase these rights and an agreement of sale is reached.  The buyer, in doing its due diligence, discovers that there are delinquent real estate taxes on the real estate in which the oil and gas, the rights to which are being sold, are located.  The buyer wants the landowner to escrow monies to pay for the delinquent real estate taxes.  Should the landowner do so?  Do the delinquent real estate tax liens attach to the oil and gas rights that are being sold?  Should the landowner pay the delinquent real estate taxes?  These are questions that can and do arise any time there is a sale of oil and gas rights and delinquent real estate taxes are discovered.  If they do arise, the answer to all of these questions should be, “No!”

The Pennsylvania Supreme Court in Independent Oil & Gas Ass’n of Pennsylvania v. Board of Fayette County, 572 Pa. 240, 814 A.2d 180 (2002) made it very clear that Pennsylvania law does not authorize the imposition of real estate taxes on oil and gas interests.

In addition, the Pennsylvania Department of Revenue in a memorandum entitled, “Informational Notice Realty Transfer Tax and Personal Income Tax 2014-2004” stated: “Further, even though oil and gas in place are considered real estate, oil and gas in place are not subject to real estate taxes,” citing the Supreme Court’s decision in Independent Oil and Gas Ass’n of Pennsylvania as the authority for its position.

Accordingly, if a buyer of a landowner’s oil and gas rights wants the landowner to pay delinquent real estate taxes where only the oil and gas interests are being sold, or wants the landowner to escrow monies to cover delinquent real estate taxes, whether in whole or in part, the landowner should refuse to do so.  The authority for the landowner’s refusal is the aforementioned Supreme Court case and memorandum from the Pennsylvania Department of Revenue.

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