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SPONSOR: |
SCORC |
DATE TYPED: |
|
HB |
|
||
SHORT TITLE: |
Withhold Oil and Gas Payments to
Nonresidents |
SB |
CS/621/aSFl#1 |
||||
|
ANALYST: |
Neel |
|||||
REVENUE
Estimated Revenue |
Subsequent Years Impact |
Recurring or
Non-Rec |
Fund Affected |
|
FY03 |
FY04 |
|
|
|
|
$1,000.0 |
$1,000.0 |
Recurring |
General
Fund—Net increase in PIT from Withholding Requirement |
|
($1,600.0) |
($2,400.0) |
Recurring |
General
Fund—Distribution to Legislative Retirement Fund |
|
($600.0) |
($1,400.0) |
Recurring |
Net
General Fund |
|
$1,600.0 |
$2,400.0 |
Recurring |
Legislative
Retirement Fund |
(Parenthesis ( ) Indicate Revenue Decreases)
Companion to:
SB 620, Legislative Retirement
LFC files
Responses
Received From
Attorney
General’s Office (AG)
Taxation
and Revenue Department (TRD)
SUMMARY
Synopsis of SFl#1
Amendment
Senate Floor Amendment #1:
·
adds precision to the definition of “residents
of
· is a technical amendment conforming language;
· requires the department to annually compile the reports filed by remitters and to compare them with records of individuals, estates or trusts filing income tax returns; and
·
makes the first section
of the bill—the new distribution to the Legislative Retirement Fund—effective
Synopsis
of Original Bill
The Senate Corporations and Transportation
Committee substitute for Senate Bill 621 imposes a withholding tax requirement
on (1) all payments of oil and gas proceeds derived from wells located in New
Mexico except for payments to individual residents of New Mexico or tax exempt
entities, and (2) distributions to non-resident owners of profits not subject
to the oil and gas proceeds withholding provisions from pass-through entities
that do business in New Mexico. The rate
of the withholding tax is initially set at 6.75% through
The Committee substitute bill also provides for
a distribution from the general fund to the legislative retirement fund. However, unlike the original bill, the
distribution to the legislative retirement fund provided in the committee
substitute is not related to the amount collected from withholding tax
collections under the other provisions of the bill.
CS/SB 621 is contingent on passage of SB620, Legislative
Retirement that creates the Legislative Retirement Fund
and amends the Public Employees Retirement Act by altering State Legislator
Member Coverage Plan 1 and by adding a new State Legislator Member Coverage
Plan 2.
Significant
Issues
The AG makes the following comments:
1.
This bill appears to target a tax toward
non-residents (as opposed to taxing residents and non-residents
uniformly). This may conflict with the
Privileges and Immunities clause of the U.S. Constitution. The Clause gives a citizen of one state the
right to conduct business in another state without having burdens greater than
that state’s own residents.
2.
On the other hand, this bill appears to
be modeled after an
FISCAL IMPLICATIONS
In determining the
fiscal impact TRD made the following assumptions:
Due to the
potential for legal challenge, there is a possibility that this bill would not
take effect, and would therefore have no impact on state revenues. See the discussion under “OTHER ISSUES.”
The department
does not have information on the likely contributions needed for the
Legislative Retirement Fund. The fiscal
impact uses the $200 thousand per month floor amount for illustrative
purposes.
The estimated
increase in personal income tax (“PIT”) collections is only a rough
approximation. Numerous uncertainties
affect the calculation. The following
list gives an idea of the difficulty of deriving an estimate:
·
Revenue
from oil and gas operations is highly variable from year-to-year, thus annual
collections will fluctuate widely.
·
Oil and
gas wells operated by pass-through entities are already subject to a
withholding requirement on distributions to their out-of-state owners. Thus the proposal does not have a material
impact on these operations, only on those operations by corporations that file
federal tax returns under schedule C of the Internal Revenue Code.
·
The
department does not have reliable information on the typical financial
arrangements between well operators and their working interest owners. The department also does not have reliable
information on the amounts being distributed annually to out-of-state owners.
·
Although
the proposal would require withholding for all out-of-state interest owners, including
individuals as well as pass-though entities, the latter could file a claim for
refund of the tax paid since they are not taxable entities under
·
Most
out-of-state shareholders are probably in compliance with the state’s tax laws
already. Income from
oil and gas interests in this state are reported to the federal government,
and are allocated to this state under the provisions of the Uniform Division of
Income for Tax Purposes Act (“UDITPA”).
Unlike some other types of business income, there is little ambiguity in
the allocation rules concerning this type of income.
ADMINISTRATIVE IMPLICATIONS
Administrative impacts to TRD would be significant. According to TRD, the new withholding requirements would require new forms and systems for processing. In particular there would be major changes to the CRS-1 return. There would be significant cost for the department and increased compliance burdens for taxpayers. Initial costs of $100 thousand and recurring expenditures for one full-time equivalent
SN/sb