Property Ownership
In Wyoming, oil and gas royalties paid to a surface owner who also retained mineral rights are:
AAlways exempt from federal income taxes
BIncome subject to federal income taxes (Wyoming has no state income tax)✓ Correct
CConsidered capital gains taxed at preferential rates
DExempt from all taxes under Wyoming law
Explanation
Oil and gas royalties are ordinary income subject to federal income taxes. Wyoming's lack of state income tax means there is no state income tax on royalties, but federal income tax still applies. There may be depletion deductions available to offset royalty income.
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