72-34-410. Disposition of natural resources. (1) If any part of the principal consists of a right to receive royalties, overriding or limited royalties, working interests, production payments, net profit interests, or other interests in minerals or other natural resources in, on, or under land, the receipts from taking the natural resources from the land shall be allocated as follows:
     (a) If received as rent on a lease or extension payments on a lease, the receipts are income.
     (b) If received from a production payment, the receipts are income to the extent of any factor for interest or its equivalent provided in the governing instrument. There shall be allocated to principal the fraction of the balance of the receipts which the unrecovered cost of the production payment bears to the balance owed on the production payment, exclusive of any factor for interest or its equivalent. The receipts not allocated to principal are income.
     (c) If received as a royalty, overriding or limited royalty or bonus, or from a working, net profit, or any other interest in minerals or other natural resources, receipts not provided for in subsections (1)(a) and (1)(b) shall be apportioned on a yearly basis in accordance with this paragraph whether or not any natural resource was being taken from the land at the time the trust was established. The receipts shall be allocated entirely to income or apportioned between income and principal as the trustee in its discretion may determine, but the amount added to principal as an allowance for depletion may not exceed the lesser of:
     (i) the percentage of gross receipts allowed as a deduction for depletion in computing taxable income for federal income tax purposes or
     (ii) 50% of the net receipts remaining after payment of expenses, direct and indirect, computed without allowance for depletion.
     (2) This section does not apply to timber, water, soil, sod, dirt, turf, or mosses.

     History: En. Sec. 147, Ch. 685, L. 1989.