The New Mexico Oil & Gas Proceeds Withholding Tax Act

The New Mexico Oil and Gas Proceeds Withholding Tax Act (NMOGPWTA) takes effect October 1, 2003.  NMOGA has received numerous calls concerning the oil and gas proceeds withholding tax, and will attempt to clarify what the tax act and proposed regulation says.

Who does the oil and gas proceeds withholding tax apply to.

  • "any person" (*defined as "individual, club, company cooperative association, corporation, firm, joint venture, partnership, receiver, syndicate, trust or other association that is entitled to oil and gas proceeds") who receives proceeds  from product (*defined as "oil, gas, liquid hydrocarbons or any combination thereof, or carbon dioxide") that is produced from any well located in New Mexico and payable as royalty interest, overriding royalty interest, production payment interest, working interest or any other proceeds expressed as a right to a specific interest in the cash proceeds received from the sale production, or in the cash value of that production that is subject to all taxes unless they have a New Mexico address.

What does "gross amounts subject to withholding" mean?

  • simply put, think of the gross amount subject to withholding as the amount normally paid to the remittee as reported on their federal Form 1099-Misc in box 2, royalties and in box 7, nonemployee compensation. 
  • the gross amount does not include the amounts deducted by the remitter for statutorily allowed expenses (defined as "value" in 7-29-4.2) and severance taxes, but does include amounts deducted for non-statutory expenses or other taxes.

Who is not subject to the to the oil and gas proceeds withholding tax.

  • 1) "any person" that has a New Mexico address as shown on  IRS form *1099-MISC or the address that is shown on **federal form W-9 or similar form, or if the remitter has not received a federal form W-9 or similar form, the relevant address is the address to which the oil and gas proceeds are mailed.
  • 2) if the proceeds are  payable to the United States, the state of New Mexico or any agency, instrumentality or political subdivision of either the United States or the state of New Mexico;
  • 3) any federally recognized Indian nation, tribe or pueblo or any agency, instrumentality or political subdivision of a federally recognized Indian nation, tribe or pueblo;
  • 4) any organization that have been granted by the IRS an exemption from federal income taxes under section 501 (c)(3);
  • 5)  if the amount of the proceeds withholding tax is less than $10.00, no withholding is required. (**... but the remitter may withhold from such payment without creating a right of action by the remittee against the remitter)

What is the rate to be withheld on our oil and gas proceeds?

  • * the rate of the withholding is 6.75% for the period October 1, 2003 through December 31, 2004.  Thereafter the rate shall be set by TRD regulation.  The rate may not exceed the higher maximum bracket rate set in the personal income tax (7-2-7 NMSA 1978) statutes or corporate income tax bracket (7-2A-5 NMSA 1978) for the taxable year.  The remitters will be given ninety days' notice of the change in the rate by TRD.

Who is liable for the payment of the Oil and Gas Proceeds Withholding Tax to the state of New Mexico.

  • "any person" (remitter) who pays oil and gas production proceeds to "any person" (remittee) that does not have a New Mexico address as reported on their 1099-MISC or federal form W-9 or similar form, or if the remitter has not received a federal form W-9 or similar form, the relevant address is the address to which the oil and gas proceeds are mailed from a well located in New Mexico.

Is there any other justifiable reason for the remitter not to have to withhold the proceeds withholding tax applied against the production proceeds?

  • 1)  * if the taxes that would have been collected and withheld have been paid;
  • 2)  **the taxes that would have been withheld is due to "reasonable cause" such as reliance on a New Mexico address supplied by the "any person" who is entitled to production proceeds
  • ** proposed regulatory language has further defined "reasonable cause" to include 1) written notification from a remittee that the payment is subject to further distribution by the remittee, as a remitter, to working interest owners, royalty interest owners, overriding royalty interest owners and/or production payment interest owners; 2) internal documentation such as a signed division order demonstrating that the payment is subject to further distribution by the remittee as a remitter to working interest owners, royalty interest owners, overriding royalty interest owners and/or production payment interest owners; 3) if the amount received by the remitter has had severance taxes or other expenses deducted prior to the time the remitter receives it, the the remitter shall be required to withhold only from the amount received.

As a remitter, my company will be held liable for the proceeds withholding tax, so regardless of what the regulations say, we are going to withhold.

  • *Section 7-3A-9 NMSA 1978 reads that "the department (Taxation & Revenue Department ((TRD))) shall interpret the provisions of the Oil and Gas Proceeds Withholding Tax Act, and shall administer and enforce the Oil and Gas Proceeds Withholding Tax Act".  Provisions provided in the regulations are interpretations of the Tax Act by the department, particularly under "justifiable cause for not withholding" and are within the scope of the law.

We already pay our estimated personal/corporate income tax, are we still subject to the the New Mexico oil and gas proceeds withholding tax?

  • * The amounts deducted through the oil and gas proceeds withholding tax are a collected tax.  The amount of tax deducted and withheld with respect to a taxpayer by a remitter,  shall be considered a payment of estimated taxes.  The entire amount of oil and gas proceeds upon which the tax was deducted and withheld on behalf of the remittee shall be included in the base income for purposes of the New Mexico Income Tax Act and the New Mexico Corporate Income and Franchise Tax Act and will be credited against any income tax or corporation income tax due from the remittee.

As a remitter, when do I pay the oil and gas Proceeds Withholding Tax?

  • remitters are required to withhold monthly, and report quarterly with payment due on or before the 25th day of the month following the close of the calendar quarter in which the tax was withheld, with TRD form RPD-41283.

Will I receive a statement of withholding from the remitter and will TRD know how much has been withheld?

  • every remitter will file an *"Annual Summary of Oil and Gas Proceeds Withholding Tax" for each remittee with TRD on or before the last day of February of the year following the year for which the statement is made along with the federal Form 1099-Misc.  If your company is not required to file a federal Form 1099-Misc, you may file the withholding on a New Mexico form RPD-41285, a pro forma federal form 1099-MISC, or a form containing equivalent information.  Each remittee will receive a copy as well TRD, to satisfy the filing requirements of the Oil and Gas Proceeds Withholding Tax Act.

How do I claim my withholding tax at the end of the calendar year?

  • you may claim your oil and gas proceeds withholding tax paid against your personal (PIT-1), corporate (CIT-1) or pass through entity (PTE) income tax return the amount withheld by attaching the annual statement of withholding to the return for the amount withheld.

When does the Oil and Gas Proceeds Withholding Tax Act go into effect?

  • the effective date is October 1, 2003, after which you will be required to withhold from any oil and gas proceeds due the remittee regardless of the sales/production date.

Who do I contact for additional information on the Oil and Gas Proceeds Withholding Tax?

  • TRD has published 505.827.0825 (Corporate Income Tax Department) for those who may have additional questions.  For NMOGA members, you may contact Deborah Seligman at 505.982.2568.  NMOGA will keep the Tax Committee internet site updated as to any changes or proposed changes and will notify member companies of updates for comment.

* statutory language (7-3A-5A) 
** proposed regulatory language

 
Please note:  The proposed TRD regulation are not final and subject to change.  The proposed regulations are open for written comment until on or before September 29, 2003.  A public hearing on the proposed regulation will be held on Monday, September 29 at the Secretary's Conference Room at the Taxation & Revenue Department, 9:30 a.m., in Santa Fe.