The Comptroller of Public Accounts adopts new §9.4031, concerning a manual for discounting oil and gas income, without changes to the proposed text as published in the September 3, 2021, issue of the Texas Register (46 TexReg 5540). The rule will not be republished.

The new §9.4031 updates and revises the Manual for Discounting Oil and Gas Income that was adopted in April 2015. The new manual explains the concept of discounting, the discounted cash flow (DCF) equation, DCF appraisal, and three acceptable techniques for estimating a discount rate in the DCF method. The updates and revisions to the manual generally reflect statutory changes, changes in the federal statutory income tax rate, updates to names and sources of information and updates to appendices to reflect current values. The adopted version is available on the Property Tax Assistance Division website.

The comptroller received public comments regarding the proposal from Rodney Kret of Pritchard and Abbott, Inc.

Mr. Kret requested the comptroller change the manual to refer to the mineral interest as the subject property rather than mineral reserves. The comptroller adopts alternative changes to the manual adopted by reference in new §9.4031 to address Mr. Kret's comment.

Mr. Kret also noted that the page footers say "Discontinuing" instead of "Discounting." The comptroller adopts this change to the manual adopted by reference in new §9.4031 to address Mr. Kret's comment.

Mr. Kret commented on an inconsistency with end-of-year verses mid-year discount rate verbiage and formula. The comptroller declines to make a change for this comment. This comment appears to refer to Appendix A, Figure 1, the annual discount factor for years one through seven are mid-year values. The note under the graphic refers to the salvage value which is discounted at the end of year seven and therefore has a different formula.

The new section is adopted under Tax Code, §5.05 (Appraisal Manuals and Other Materials) and §23.175 (Oil or Gas Interests), which provide the comptroller with the authority to develop and distribute to each appraisal office appraisal manuals that specify the methods and procedures to discount future income from the sale of oil or gas from the interest to present value.

The new section implements Tax Code, §23.175 (Oil or Gas Interests).