Fiscal impact reports (FIRs) are prepared by the Legislative Finance Committee (LFC) for standing finance

committees of the NM Legislature. The LFC does not assume responsibility for the accuracy of these reports

if they are used for other purposes.

Current FIRs (in HTML & Adobe PDF formats) are a vailable on the NM Legislative Website (legis.state.nm.us).

Adobe PDF versions include all attachments, whereas HTML versions may not. Previously issued FIRs and

attachments may be obtained from the LFC in Suite 101 of the State Capitol Building North.

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

SPONSOR B. Lujan

DATE TYPED 02/28/05 HB 1086

SHORT TITLE Raise Oil Severance Privilege Tax

SB

ANALYST Padilla-Jackson

REVENUE

Estimated Revenue

Subsequent

Years Impact

Recurring

or Non-Rec

Fund

Affected

FY06

FY07

$18,000.0

$17,000.0 Indeterminate, but positive Recurring

General Fund

(Parenthesis ( ) Indicate Revenue Decreases)

Relates to House Bill 434, House Bill 644, and Senate Bill 764.

SOURCES OF INFORMATION

LFC Files

Responses Received From

Energy, Minerals & Natural Resources Department (EMNRD)

SUMMARY

Synopsis of Bill

House Bill 1086 proposes to increase the tax rate on the severance of crude oil to the same rate

currently imposed on the severance of natural gas. Specifically, the bill would increase the

Emergency School Tax rate on crude oil from 3.15 percent of taxable value to 4 percent.

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

Significant Issues

The tax decrease would equalize the rate paid by both natural gas and crude oil producers, plac-

ing them on equal footing. That said, current tax rate differentials between natural gas and crude

oil producers could likely represent differences in profitability.

FISCAL IMPLICATIONS

The total fiscal impact of this bill is $18 million for FY06 to the general fund. The fiscal impact

House Bill 1086 -- Page 2

is calculated by comparing the product of the crude oil taxable value estimate by the proposed

new rate of 4.00 percent versus the product of the crude oil taxable value estimate by the existing

rate of 3.15 percent. The assumed taxable value is based on the most up to date consensus oil

and gas revenue estimates for FY06 and FY07. The fiscal impact could change based on changes

in crude oil prices, which have tended to be fairly volatile in recent years.

ADMINISTRATIVE IMPLICATIONS

Minimal administrative impact is estimated to TRD.

CONFLICT, DUPLICATION, COMPANIONSHIP, RELATIONSHIP

House Bill 1086 relates to House Bill 644 and Senate Bill 764, which both decrease natural gas

severance tax rate to 3.15 percent. House Bill 434 subjects helium to various state severance

taxes.

TECHNICAL ISSUES

EMNRD pointed out that the bill does not include a corresponding increase in the tax rate im-

posed on oil and other liquid hydrocarbons removed from natural gas from a stripper well prop-

erty. Those rates would have to be addressed also in order to completely equalize the oil and gas

tax rates. House Bill 644, which proposes to equalize the tax rates by reducing the tax rate on

natural gas, included the corresponding decreases in the tax rate imposed on natural gas removed

from stripper well properties.

OPJ/lg