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F I S C A L I M P A C T R E P O R T

SPONSOR Whitaker

DATE TYPED 02/02/05 HB 434

SHORT TITLE Subject Helium To Various Severance Taxes

SB

ANALYST Padilla-Jackson

REVENUE

Estimated Revenue

Subsequent

Years Impact

Recurring

or Non-Rec

Fund

Affected

FY05

FY06

See Narrative

Increasing Recurring

Severance Tax

Bonding Fund

See Narrative

Increasing Recurring

General Fund

See Narrative

Increasing Recurring Local Governments

(Parenthesis ( ) Indicate Revenue Decreases)

SOURCES OF INFORMATION

LFC Files

Responses Received From

Taxation and Revenue Department (TRD)

SUMMARY

Synopsis of Bill

House Bill 434 amends current severance tax laws to include helium and hydrocarbon gasses in

the definition of products that are severed and sold and for which various taxes are imposed. The

applicable taxes include the oil and gas severance tax (3.75%), the oil and gas conservation tax

(0.19%), the oil and gas school emergency tax (3.15%), the oil and gas ad valorem production

tax, and the oil and gas production equipment ad valorem tax. Taxable value is defined in cur-

rent law as the actual price received for products at the production unit, including deductions for

royalties paid to state and federal governments and/or Indian tribes and transportation to the first

place of market.

House Bill 434 also amends the current statute to specify the tax remittance due date for coal and

uranium as “on or before the twenty-fifth day of the month following the month in which the tax-

able event occurs. According to TRD, this amendment makes the due date consistent with other

provisions on coal and uranium.

House Bill 434 -- Page 2

The effective date of the provisions of this bill is July 1, 2005.

Significant Issues

Helium is a common byproduct of natural gasses. According to a recent report by the New Mex-

ico Bureau of Geology and Mineral Resources (BGMR), helium gas has been produced in New

Mexico since 1943, with production coming from eight oil and gas fields located in northwestern

New Mexico. Unfortunately, as TRD notes below, statistics on state helium production and sales

are not available. According to the report, gases with helium contents of more than 0.3 percent

are considered to be of commercial interest as helium sources and only 17.6 percent of all natural

gases in the U.S. contain more than 0.3 mole percent helium. Furthermore, six natural gas reser-

voirs are reported to contain an estimated 97 percent of all identified helium reserves in the

United States, all of which are located outside of New Mexico. That said, the report notes that

gases with helium contents ranging from 0.3 to almost 1.0 percent do occur in reservoirs along

the northwest flank of the Permian Basin and other basins and areas in New Mexico are charac-

terized by helium-rich gases and are of significant exploratory interest.

The report showed that total helium sales in the United States increased 13 percent from 1998 to

2002, while domestic production has fallen by 22 percent, which they believe indicates a need to

identify and develop new sources of helium.

FISCAL IMPLICATIONS

The analysis provided by TRD suggests the fiscal impact will be minimal in the near term. Ac-

cording to TRD, the best information available is that little, if any, helium is currently being pro-

duced on a commercial basis in New Mexico. TRD expects this to change in the future since the

demand for helium, and the price, has been growing rapidly according to the US Geological Sur-

vey. BGMR reported that the private industry price for Grade A helium was estimated to be $60

to $65 per thousand ft

3

in 2003, up from $42 to $50 per thousand ft

3

in 2000. Of course, this bill

would increase the cost of producing helium, which raises the breakeven threshold for profitabil-

ity.

ADMINISTRATIVE IMPLICATIONS

TRD expects that the bill’s provisions will have a only a minimal impact on the department to re-

program systems and processes for the new minerals.

TRD also notes that the change in due dates for coal conservation tax would mean that taxpayers

would receive a refund of their advance payment balances estimated at about $100,000 in total.

System changes would be needed to recognize new return and payment due date.

OPJ/lg