What is "severance tax"

n. (context US English) A state tax on the extraction of nonrenewable natural resources (such as minerals, petroleum, or natural gas) that will be used in another state.

Severance taxes are incurred when non-renewable natural resources are extracted (or severed) within a taxing jurisdiction. Resources that typically incur severance taxes when extracted are oil, natural gas, coal, uranium, and timber. Some jurisdictions use other terms like gross production tax.

Note that severance taxes are used in jurisdictions where most resource extraction occurs on privately owned land and/or where sub-surface minerals are privately owned (for example, the United States). Where the resources are publicly owned to begin with (for example, in most Commonwealth and European Union countries), it is not a tax but rather a resource royalty that is paid. In the case of the forestry industry, this royalty is called " stumpage".