HB0014TRS

HOUSE TAXATION AND REVENUE COMMITTEE SUBSTITUTE FOR

HOUSE BILL 14

57th legislature - STATE OF NEW MEXICO - first session, 2025

AN ACT

RELATING TO TAXATION; CREATING THE OIL AND GAS EQUALIZATION SURTAX IN THE OIL AND GAS EMERGENCY SCHOOL TAX ACT TO IMPOSE A TAX ON CERTAIN OIL PRODUCTS IF THE PRICE OF OIL MEETS A CERTAIN THRESHOLD; DECREASING THE RATE OF THE OIL AND GAS EMERGENCY SCHOOL TAX ON CERTAIN NATURAL GAS PRODUCTS; REPEALING THE WORKING FAMILIES TAX CREDIT AND ENACTING THE EARNED INCOME TAX CREDIT.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF NEW MEXICO:

SECTION 1. Section 7-1-10 NMSA 1978 (being Laws 1965, Chapter 248, Section 15, as amended) is amended to read:

"7-1-10. RECORDS REQUIRED BY STATUTE--TAXPAYER RECORDS--

ACCOUNTING METHODS--REPORTING METHODS--INFORMATION RETURNS.--

A. Every person required by the provisions of any statute administered by the department to keep records and documents and every taxpayer shall maintain books of account or other records in a manner that will permit the accurate computation of state taxes or provide information required by the statute under which the person is required to keep records.

B. Methods of accounting shall be consistent for the same business. A taxpayer engaged in more than one business may use a different method of accounting for each business.

C. Prior to changing the method of accounting in keeping books and records for tax purposes, a taxpayer shall first secure the consent of the secretary or the secretary's delegate. If consent is not secured, the department upon audit may require the taxpayer to compute the amount of tax due on the basis of the accounting method earlier used.

D. Prior to changing the method of reporting taxes, other than for changes required by law, a taxpayer shall first secure the consent of the secretary or the secretary's delegate. Consent shall be granted or withheld pursuant to the provisions of Section 7-4-19 NMSA 1978. If consent is not secured, the secretary or the secretary's delegate upon audit may require the taxpayer to compute the amount of tax due on the basis of the reporting method earlier used.

E. Upon the written application of a taxpayer and at the sole discretion of the secretary or the secretary's delegate, the secretary or the secretary's delegate may enter into an agreement with a taxpayer allowing the taxpayer to report values, gross receipts, deductions or the value of property on an estimated basis for gross receipts and compensating tax, oil and gas severance tax, oil and gas conservation tax, oil and gas emergency school tax, oil and gas equalization surtax and oil and gas ad valorem production tax purposes for a limited period of time not to exceed four years. As used in this section, "estimated basis" means a methodology that is reasonably expected to approximate the tax that will be due over the period of the agreement using summary rather than detail data or alternate valuation applications or methods, provided that:

(1) nothing in this section shall be construed to require the secretary or the secretary's delegate to enter into such an agreement; and

(2) the agreement must:

(a) specify the receipts, deductions or values to be reported on an estimated basis and the methodology to be followed by the taxpayer in making the estimates;

(b) state the term of the agreement and the procedures for terminating the agreement prior to its expiration;

(d) contain a declaration by the taxpayer or the taxpayer's representative that all statements of fact made by the taxpayer or the taxpayer's representative in the taxpayer's application and the agreement are true and correct as to every material matter.

F. The secretary may, by regulation, require any person doing business in the state to submit to the department information reports that are considered reasonable and necessary for the administration of any provision of law to which the Tax Administration Act applies."

SECTION 2. Section 7-31-2 NMSA 1978 (being Laws 1959, Chapter 54, Section 2, as amended) is amended to read:

"7-31-2. DEFINITIONS.--As used in the Oil and Gas Emergency School Tax Act:

A. ["commission"] "department" [or "division"] means the taxation and revenue department, the secretary of taxation and revenue or any employee of the department exercising authority lawfully delegated to that employee by the secretary;

B. "production unit" means a unit of property designated by the department from which products of common ownership are severed;

C. "severance" means the taking from the soil of any product in any manner whatsoever;

D. "value" means the actual price received from products at the production unit, except as otherwise provided in the Oil and Gas Emergency School Tax Act;

E. "product" or "products" means oil, including crude, slop or skim oil and condensate; natural gas; liquid hydrocarbon, including ethane, propane, isobutene, normal butane and pentanes plus, individually or any combination thereof; and non-hydrocarbon gases, including carbon dioxide and helium;

F. "operator" means any person:

(1) engaged in the severance of products from a production unit; or

(2) owning an interest in any product at the time of severance who receives a portion or all of such product for the person's interest;

G. "purchaser" means a person who is the first purchaser of a product after severance from a production unit, except as otherwise provided in the Oil and Gas Emergency School Tax Act;

H. "person" means any individual, estate, trust, receiver, business trust, corporation, firm, copartnership, cooperative, joint venture, association, limited liability company or other group or combination acting as a unit, and the plural as well as the singular number;

I. "interest owner" means a person owning an entire or fractional interest of whatsoever kind or nature in the products at the time of severance from a production unit or who has a right to a monetary payment that is determined by the value of such products;

J. "stripper well property" means a crude oil or natural gas producing property that is assigned a single production unit number by the department and is certified by the oil conservation division of the energy, minerals and natural resources department pursuant to the Natural Gas and Crude Oil Production Incentive Act to have produced in the preceding calendar year:

(1) if a crude oil producing property, an average daily production of less than ten barrels of oil per eligible well per day;

(2) if a natural gas producing property, an average daily production of less than sixty thousand cubic feet of natural gas per eligible well per day; or

(3) if a property with wells that produce both crude oil and natural gas, an average daily production of less than ten barrels of oil per eligible well per day, as determined by converting the volume of natural gas produced by the well to barrels of oil by using a ratio of six thousand cubic feet to one barrel of oil;

K. "average annual taxable value" means as applicable:

(1) the average of the taxable value per one thousand cubic feet, determined pursuant to Section 7-31-5 NMSA 1978, of all natural gas produced in New Mexico for the specified calendar year as determined by the department; or

(2) the average of the taxable value per barrel, determined pursuant to Section 7-31-5 NMSA 1978, of all oil produced in New Mexico for the specified calendar year as determined by the department;

L. "tax" means the oil and gas emergency school tax and the oil and gas equalization surtax; and

M. "volume" means the quantity of product severed reported using:

(1) oil, condensate and slop oil in barrels; and

(2) natural gas, liquid hydrocarbons, helium and carbon dioxide in thousand cubic feet at a pressure base of fifteen and twenty-five thousandths pounds per square inch."

SECTION 3. Section 7-31-4 NMSA 1978 (being Laws 1959, Chapter 54, Section 4, as amended) is amended to read:

"7-31-4. PRIVILEGE TAX LEVIED--COLLECTED BY DEPARTMENT-- RATE--INTEREST OWNER'S LIABILITY TO STATE--INDIAN LIABILITY.--

A. There is [levied] imposed and shall be collected by the department a privilege tax, to be referred to as the "oil and gas emergency school tax", on [the business of every person severing products in this state] all products that are severed and sold. The measure of the tax shall be:

(1) on oil and on oil and other liquid hydrocarbons removed from natural gas at or near the wellhead, except as provided in Paragraphs (4) and (5) of this subsection, three and [fifteen hundredths] fifteen-hundredths percent of the taxable value determined pursuant to Section 7-31-5 NMSA 1978;

(2) on carbon dioxide, helium and non-hydrocarbon gases, three and [fifteen hundredths] fifteen-hundredths percent of the taxable value determined pursuant to Section 7-31-5 NMSA 1978;

(3) on natural gas, except as provided in Paragraphs (6) and (7) of this subsection, [four] three and nine-tenths percent of the taxable value determined pursuant to Section 7-31-5 NMSA 1978;

(4) on the oil and on other liquid hydrocarbons removed from natural gas at or near the wellhead from a stripper well property, one and fifty-eight hundredths percent of the taxable value determined pursuant to Section 7-31-5 NMSA 1978, provided that the average annual taxable value of oil was equal to or less than fifteen dollars ($15.00) per barrel in the calendar year preceding July 1 of the fiscal year in which the tax rate is to be imposed;

(5) on the oil and on other liquid hydrocarbons removed from natural gas at or near the wellhead from a stripper well property, two and thirty-six hundredths percent of the taxable value determined pursuant to Section 7-31-5 NMSA 1978, provided that the average annual taxable value of oil was greater than fifteen dollars ($15.00) per barrel but not more than eighteen dollars ($18.00) per barrel in the calendar year preceding July 1 of the fiscal year in which the tax rate is to be imposed;

(6) on the natural gas removed from a stripper well property, two percent of the taxable value determined pursuant to Section 7-31-5 NMSA 1978, provided that the average annual taxable value of natural gas was equal to or less than one dollar fifteen cents ($1.15) per thousand cubic feet in the calendar year preceding July 1 of the fiscal year in which the tax rate is to be imposed; and

(7) on the natural gas removed from a stripper well property, three percent of the taxable value determined pursuant to Section 7-31-5 NMSA 1978, provided that the average annual taxable value of natural gas was greater than one dollar fifteen cents ($1.15) per thousand cubic feet but not more than one dollar thirty-five cents ($1.35) per thousand cubic feet in the calendar year preceding July 1 of the fiscal year in which the tax rate is to be imposed.

B. Every interest owner, for the purpose of levying this tax, is deemed to be in the business of severing products and is liable for this tax to the extent of [his] the owner's interest in the value of the products or to the extent of [his] the owner's interest as may be measured by the value of the products.

C. Any Indian tribe, Indian pueblo or Indian is liable for this tax to the extent authorized or permitted by law."

SECTION 4. A new section of the Oil and Gas Emergency School Tax Act, Section 7-31-4.1 NMSA 1978, is enacted to read:

"7-31-4.1. [NEW MATERIAL] OIL AND GAS EQUALIZATION SURTAX.--

A. Except as provided in Subsection B of this section, in addition to the oil and gas emergency school tax, there is imposed and shall be collected by the department a surtax, to be referred to as the "oil and gas equalization surtax", on products that are oil and other liquid hydrocarbons removed from natural gas at or near the wellhead and severed and sold. If the average price of west Texas intermediate crude in the previous quarter is greater than or equal to fifty-five dollars ($55.00) per barrel, the rate of the surtax is twenty-eight hundredths percent of the taxable value of the products that are severed and sold in the ensuing quarter.

B. If the average price of west Texas intermediate crude in the previous quarter is less than fifty-five dollars ($55.00) per barrel, no surtax in the ensuing quarter shall be levied pursuant to this section.

C. Any Indian tribe, Indian pueblo or Indian is liable for the surtax to the extent authorized or permitted by law."

SECTION 5. Section 7-31-7 NMSA 1978 (being Laws 1959, Chapter 54, Section 7, as amended) is amended to read:

"7-31-7. PRICE INCREASE SUBJECT TO APPROVAL OF AGENCY OF UNITED STATES OF AMERICA, STATE OF NEW MEXICO OR COURT--REFUND.--When an increase in the value of any product is subject to the approval of any agency of the United States of America or the state of New Mexico or any court, the increased value shall be subject to [this] tax. In the event the increase in value is disapproved, either in whole or in part, then the amount of tax [which] that has been paid on the disapproved part of the value shall be considered excess tax. Any person who has paid any such excess tax may apply for a refund of that excess tax in accordance with the provisions of Section 7-1-26 NMSA 1978."

SECTION 6. Section 7-31-8 NMSA 1978 (being Laws 1959, Chapter 54, Section 8) is amended to read:

"7-31-8. PRODUCTS ON WHICH TAX HAS BEEN LEVIED--[REGULATION BY COMMISSION] DEPARTMENT RULE.--[This tax] The oil and gas emergency school tax and the oil and gas equalization surtax shall not be levied more than once on the same product. Reporting of products on which [this] tax has been paid shall be subject to [the regulation of the commission] department rule."

SECTION 7. Section 7-31-26 NMSA 1978 (being Laws 1991, Chapter 9, Section 38) is amended to read:

"7-31-26. ADVANCE PAYMENT REQUIRED.--

A. Any person required to make payment of tax pursuant to Section 7-31-10 or 7-31-11 NMSA 1978 shall make the advance payment required by this section.

B. For the purposes of this section:

(1) "advance payment" means the payment required to be made by this section in addition to any oil and gas emergency school tax and oil and gas equalization surtax, penalty or interest due; and

(2) "average tax" means the aggregate amount of tax, [net of] less any refunds or credits, paid by a person during the twelve-month period ending March 31 pursuant to the Oil and Gas Emergency School Tax Act divided by the number of months during that period for which the person made payment.

C. Each year, prior to July 1, each person required to pay tax pursuant to the Oil and Gas Emergency School Tax Act shall compute the average tax for the period ending March 31 of that year. The average tax calculated for a year shall be used during the twelve-month period beginning with July of that year and ending with June of the following year as the basis for making the advance payments required by Subsection D of this section.

D. Every month, beginning with July 1991, every person required to pay tax in a month pursuant to the Oil and Gas Emergency School Tax Act shall pay, in addition to any amount of tax, interest or penalty due, an advance payment in an amount equal to the applicable average tax, except:

(1) if the person is making a final return under the Oil and Gas Emergency School Tax Act, no advance payment pursuant to this subsection is due for that return; and

(2) as provided in Subsection F of this section.

E. Every month, beginning with tax payments in August 1991, every person required to pay tax pursuant to the Oil and Gas Emergency School Tax Act may claim a credit equal to the amount of advance payment made in the previous month, except as provided in Subsection F of this section.

F. If, in any month, a person is not required to pay tax pursuant to the Oil and Gas Emergency School Tax Act, that person is not required to pay the advance payment and may not claim a credit pursuant to Subsection E of this section; provided that, in any succeeding month when the person has liability under the Oil and Gas Emergency School Tax Act, the person may claim a credit for any advance payment made and not credited.

G. In the event that the date by which a person is required to pay the tax pursuant to the Oil and Gas Emergency School Tax Act is accelerated to a date earlier than the twenty-fifth day of the second month following the month of production, the advance payment provision contained in this section is [null and] void and any money held as advance payments shall be credited to the taxpayers' accounts."

SECTION 8. Section 7-2-18.15 NMSA 1978 (being Laws 2007, Chapter 45, Section 9, as amended) is repealed and a new Section 7-2-18.15 NMSA 1978 is enacted to read:

"7-2-18.15. [NEW MATERIAL] EARNED INCOME TAX CREDIT.--

A. The credit provided by this section may be referred to as the "earned income tax credit". A taxpayer who is an eligible individual may claim the earned income tax credit against the taxpayer's tax liability imposed pursuant to the Income Tax Act in an amount equal to the credit percentage of so much of the taxpayer's earned income for the taxable year as does not exceed the earned income amount; provided that the amount of the credit shall not exceed the excess of:

(1) the credit percentage of the earned income amount; over

(2) the phaseout percentage of so much of the adjusted gross income or, if greater, the earned income, of the taxpayer for the taxable year as exceeds the phaseout amount.

B. The credit percentage and the phaseout percentage shall be determined as follows:

In the case of a taxpayer The credit The phaseout

with: percentage is: percentage is:

1 qualifying child 11.55% 4.55%

2 qualifying children 13.6% 6.15%

3 or more qualifying children 15.3% 6.15%

No qualifying children 2.6% 2.1%.

C. Except as provided in Subsections E and F of this section, the earned income amount and the phaseout amount shall be determined as follows:

In the case of a taxpayer The earned The phaseout

with: income amount amount is:

is:

1 qualifying child $11,000 $36,000

2 or more qualifying children $15,000 $40,000

No qualifying children $8,000 $25,000.

D. For married individuals filing joint returns, the phaseout amount shall be increased by five thousand dollars ($5,000).

E. Except as provided in Subsection F of this section, if the greater of an eligible individual's earned income or adjusted gross income is less than the earned income amount and the amount of credit is less than one hundred dollars ($100), the amount of the credit shall be one hundred dollars ($100).

F. For the 2026 taxable year and each subsequent taxable year, the earned income amounts and phaseout amounts shown in the table in Subsection C of this section, the amount of credit provided in Subsection E of this section and the phaseout amount provided in Subsection D of this section shall be adjusted to account for inflation. The department shall make the adjustment by multiplying each amount of credit by a fraction, the numerator of which is the consumer price index ending during the prior taxable year and the denominator of which is the consumer price index ending in taxable year 2025. The result of the multiplication shall be rounded to the nearest ten dollars ($10.00), except that if the result would be an amount less than the corresponding amount for the preceding taxable year, then no adjustment shall be made.

G. The secretary shall reflect the provisions of Subsections B and C of this section in tables that shall have income brackets of not greater than fifty dollars ($50.00) each for:

(1) earned income between zero and the amount of earned income at which the credit is phased out under Subsection C of this section; and

(2) adjusted gross income between the dollar amount at which the phase out begins under Subsection C of this section and the amount of adjusted gross income at which the credit is phased out under that subsection.

H. That portion of credit that exceeds a taxpayer's tax liability in the taxable year in which the credit is claimed shall be refunded. A refund made to a taxpayer pursuant to this section shall not be treated as income.

I. A taxpayer allowed a tax credit pursuant to this section shall report the amount of the credit to the department in a manner required by the department.

J. The credit provided by this section shall be included in the tax expenditure budget pursuant to Section 7-1-84 NMSA 1978, including the total annual aggregate cost of the credit.

K. As used in this section:

(1) "earned income" means "earned income" as defined in 26 U.S.C. 32(c)(2);

(2) "eligible individual" means a resident who is:

(a) an "eligible individual" pursuant to the federal earned income tax credit who is eligible to claim the federal earned income tax credit in the taxable year; or

(b) an individual who would have been eligible for the federal earned income tax credit but for the: 1) identification number requirement pursuant to 26 U.S.C. 32(m), as that section may be amended or renumbered; or 2) the age requirement pursuant to 26 U.S.C. 32(c)(1)(A)(ii)(II), as that section may be amended or renumbered; provided that the taxpayer is at least eighteen years of age but has not reached the age of twenty-five;

(3) "federal earned income tax credit" means the federal tax credit allowed pursuant to 26 U.S.C. 32, as that section may be amended or renumbered; and

(4) "qualifying child" means "qualifying child" as defined by Section 152(c) of the Internal Revenue Code, as that section may be amended or renumbered, but includes any minor child or stepchild of the taxpayer who would be a qualifying child for federal income tax purposes if the public assistance contributing to the support of the child or stepchild was considered to have been contributed by the taxpayer."

SECTION 9. APPLICABILITY.--The provisions of Section 8 of this act apply to taxable years beginning on or after January 1, 2025.

SECTION 10. EFFECTIVE DATE.--The effective date of the provisions of Sections 1 through 7 of this act is July 1, 2025.

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