Oil & Gas Outreach
The State Assessed Properties Bureau (SAPB) recently held an outreach/training program for the Oil & Gas Industry. The outreach was held in Albuquerque on 2/20/2018 and Artesia on 2/22/2018.
The outreach was intended to provide clarification regarding proper reporting in the Oil & Gas Industry. More specifically, we covered ad valorem production and production equipment tax (Audit & Compliance Division – Oil & Gas Bureau responsibility) versus property tax (Property Tax Division/County Assessor responsibility). Further, we discussed what type of property is assessed by the State (Property Tax Division – SAPB) compared to what is assessed locally (County Assessors). Reporting instructions and forms were also discussed.
The feedback we received from the outreach was positive, so we decided to put the material on our website for those who were not able to attend the outreach, and for the public. Below are the PowerPoint presentations and other materials covered during the outreach.
Property Tax District Web Map
ACD Oil & Gas Bureau Presentation:
SAPB Presentation & Materials:
The four buckets of taxation for ad valorem production and equipment tax, and property tax for the Oil & Gas Industry.
The following illustration provides an overview of what is taxed via property taxation vs. ad valorem production taxes and what governmental entity (TRD or local assessor) has the responsibility to assess the taxable property. This illustration cannot be substituted for statute – it is meant as a tool to help taxpayers and other interested parties understand property vs ad valorem production and equipment taxes for the Oil & Gas industry. If you have a specific question regarding property taxes, contact the State Assessed Properties Bureau at (505) 827-0895. If you have a specific question regarding ad valorem taxes on production and production equipment, contact the Audit & Compliance Division – Oil & Gas Bureau at OilGas.Outreach@state.nm.us or call 866-285-2996 – PRESS OPTION 2
Production Equipment Ad Valorem Tax – § 7-34-1 et seq.
- “Equipment” is wells and non mobile equipment used at a production unit in connection with severance, treatment or storage of production unit products. § 7-34-2 (G).
- If the property meets this definition, it is not valued for the property taxation purposes AT ALL. §§ 7-36-7 (B) (2), 7-34-5.
- Mill rates established by DFA apply to the value of the product severed as proxy for equipment valuation.
State (Centrally) Assessed Pipeline Property – §§ 7-36-2, 7-36-27
- TRD has responsibility for valuing all property that is subject to valuation and that is “used in a pipeline business.”
- Pipeline is all pipe and appurtenances used in a gathering, transmission, or distribution business, except in-plant pipeline, direct customer distribution line, and small sales meters. § 7-36-27 (B)(8).
- Valuation method:
- Small sales meters – per schedule set by TRD, which is based on average acquisition cost less average accumulated depreciation.
- Pipeline – acquisition cost less depreciation less other justifiable factors with a valuation floor of not < 20% of acquisition cost
- Construction-work-in-progress (the total balances of work orders for construction/installation on the last day of the previous year) – 50% of the amount expended and entered on the accounting records of taxpayer as of 12/31 of the previous year.
Locally Assessed Pipeline Property – NMAC 18.104.22.168(B)
- This bucket contains pipeline, tanks, sales meters and plants that are not (a) used in the conduct of pipeline business, (b) used in a public utility, or (c) necessary to the proper functioning of either.
- This property is locally valued by the county assessors.
- Property in this bucket is valued under the same statutory methodology as Bucket 2, state (centrally) assessed pipeline property.
Other Locally & State (Centrally) Assessed Commercial/Industrial Property Used by the Oil & Gas Businesses – § 7-36-33
- This bucket does not include: (a) “equipment” that falls into Bucket 1; or (b) property valued under 7-36-27 (Buckets 2/3).
- This property can be valued locally by the county assessors & by the State (Centrally) Assessed Property Bureau.
- General Valuation Method: acquisition cost less depreciation and other justifiable factors with a floor of not < 12.5 % of acquisition cost.
- Construction-work-in-progress: 50% of the amount expended as of 12/31 of the previous year.
- Statute authorizes TRD to establish schedules of value for like types of property and requires TRD to adopt schedules of value for drilling rigs and large off-highway construction equipment. All Multi-County Construction/Drilling and Out of State Construction/Drilling are valued by State (Centrally) Assessed Property Bureau.
- NMAC § 22.214.171.124(D) values rigs by depth capacity.
Production Unit Definition
Generally, production unit equipment is taxed on the Ad Valorem side (ACD). Non-production unit equipment taxed on property tax side (State Assessed or Locally Assessed). Below is the definition of a Production Unit per Section 7-32-2 NMSA 1978, Regulation 126.96.36.199, E. NMAC.
7-32-2. DEFINITIONS.– As used in the Oil and Gas Ad Valorem Production 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;
318.1.7 – DEFINITIONS:
E. PRODUCTION UNIT:
(1) For purposes of determining value with respect to production on or after July
15, 1998, a production unit is the wellhead and the equipment associated with the wellhead. Equipment associated with the wellhead consists of all pipe and equipment supporting separation, dehydration, compression, sweetening, product storage, metering and other activities prior to and including the first place of physical measurement.
(a) For oil and condensate, the first place of physical measurement is either the outlet of the initial storage facility or the outlet of the lease automatic custody transfer unit.
(b) For natural gas and carbon dioxide, the first place of physical measurement is the outlet of the custody transfer meter, the allocation meter or the sales meter, whichever occurs first.