New Mexico Severance Tax: Rates, Credits, and Filing
Understand the framework of New Mexico's severance tax, detailing how taxable value is calculated and how state credits can reduce final tax liability.
The New Mexico severance tax is an excise tax on the extraction of non-renewable natural resources. This tax is imposed on the value of products like oil, gas, and coal at the point they are “severed” or removed from the earth. Revenue from this tax is directed to the severance tax bonding fund, which is used to service debt on state-issued bonds that finance public capital projects. Any revenue remaining after meeting these debt obligations is deposited into a permanent fund, ensuring a source of income for the state’s future.
Products Subject to the Tax and Applicable Rates
The severance tax applies to a range of natural resources, with specific rates for each. For oil, natural gas, and the liquid hydrocarbons separated from natural gas, the base severance tax rate is 3.75% of their taxable value. Other state taxes also apply, leading to a higher overall tax burden that differs for oil and natural gas.
Carbon dioxide extracted from the soil is also subject to the 3.75% tax rate. Coal is taxed on a per-ton basis, with a base rate of $0.57 per short ton for surface coal and $0.55 per short ton for underground coal. In addition to these rates, a surtax is imposed which is adjusted annually based on inflation, causing the total tax per ton to change.
Beyond fossil fuels, other minerals have their own specific severance tax rates. Copper is taxed at a rate of 1/2 of one percent, while gold and silver are taxed at 1/5 of one percent. A rate of 1/8 of one percent is applied to a variety of other nonmetallic minerals and metals, including:
- Pumice
- Gypsum
- Sand
- Gravel
- Lead
- Zinc
Calculating the Taxable Value
The final tax amount is based on the “taxable value” of the severed product, not its gross sales price. This value is derived by taking the product’s market value and subtracting certain allowable deductions. This process ensures the tax is applied to the value of the resource at the production site.
The main deductions from the gross value are royalties paid to governmental or tribal entities. Producers can subtract royalty payments made to the United States federal government, the state of New Mexico, or any Indian tribe or pueblo. This prevents taxing funds already obligated to these entities for the right to extract resources from their lands.
Another deduction is for the reasonable expenses of transporting the product from the production unit to its first place of market. This involves the costs of trucking the resource from the well or mine. For resources like natural gas, deductions may also include costs for gathering, pipeline transportation, and processing necessary to make the product marketable.
Filing and Paying the Severance Tax
Complying with New Mexico’s severance tax requirements involves specific steps for reporting and payment. After determining their final tax liability, producers must remit the tax to the state. The necessary forms for reporting production volumes, values, and deductions can be found on the New Mexico Taxation and Revenue Department’s website.
The filing deadline for the severance tax is the 25th day of the month following the month of production. For example, taxes on resources severed in January are due by February 25th. The state requires electronic filing and payment through its online portal, the Taxpayer Access Point (TAP). Producers use this system to submit returns and authorize payment.