Oil and Gas Proceeds and Pass-Through Entity Withholding Tax

NMSA 1978 ch. 7, art. 3A

in effect

NMSA 1978, § 7-3A-1 Short title

7-3A-1. Short title Chapter 7, Article 3A NMSA 1978 may be referred to as the "Oil and Gas Proceeds and Pass-Through Entity Withholding Tax Act". 1978 Comp., § 7-3A-1, enacted by Laws 2003, ch. 86, § 4; 2010, ch. 53, § 8.

NMSA 1978, § 7-3A-2 Definitions

7-3A-2. Definitions As used in the Oil and Gas Proceeds and Pass-Through Entity Withholding Tax Act: A. "department" 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. "Internal Revenue Code" means the Internal Revenue Code of 1986, as amended; C. "net income" means, for any pass-through entity: (1) in the case of an owner that is taxed as a corporation for federal income tax purposes, "net income" as defined in the Corporate Income and Franchise Tax Act [Chapter 7, Article 2A NMSA 1978]; and (2) for all other owners, "net income" as defined in the Income Tax Act [Chapter 7, Article 2 NMSA 1978]; D. "oil and gas" means crude oil, natural gas, liquid hydrocarbons or any combination thereof, or carbon dioxide; E. "oil and gas proceeds" means any amount derived from oil and gas production from any well located in New Mexico and payable as royalty interest, overriding royalty interest, production payment interest, working interest or any other obligation expressed as a right to a specified interest in the cash proceeds received from the sale of oil and gas production or in the cash value of that production, subject to all taxes withheld therefrom pursuant to law; "oil and gas proceeds" excludes "net profits interest" and other types of interest the extent of which cannot be determined with reference to a specified share of the oil and gas production and excludes any amounts deducted by the remitter from payments to interest owners or paid by interest owners to the remitter that are for expenses related to the production from the well or cessation of production from the well for which the interest owner is liable; F. "owner" means a partner in a partnership not taxed as a corporation for federal income tax purposes for the taxable year, a shareholder of an S corporation or of a corporation other than an S corporation that is not taxed as a corporation for federal income tax purposes for the taxable year, a member of a limited liability company or any similar person holding an ownership interest in any pass-through entity. "Owner" also means a performing artist to whom payments are due from a personal services business; G. "partnership" means a combination of persons, including a partnership, joint venture, common trust fund, association, pool or working agreement, or any other combination of persons that is treated as a partnership for federal income tax purposes; H. "pass-through entity" means a personal services business or any other business association other than: (1) a sole proprietorship; (2) an estate or trust that does not distribute income to beneficiaries; (3) a corporation, limited liability company, partnership or other entity not a sole proprietorship taxed as a corporation for federal income tax purposes for the taxable year; (4) a partnership that is organized as an investment partnership in which the partners' income is derived solely from interest, dividends and sales of securities; (5) a single member limited liability company that is treated as a disregarded entity for federal income tax purposes; or (6) a publicly traded partnership as defined in Subsection (b) of Section 7704 of the Internal Revenue Code; I. "person" means an individual, club, company, cooperative association, corporation, estate, firm, joint venture, partnership, receiver, syndicate, trust or other association, limited liability company, limited liability partnership or gas, water or electric utility owned or operated by a county or municipality and, to the extent permitted by law, a federal, state or other governmental unit or subdivision or an agency, a department or an instrumentality thereof; J. "personal services business" means a business organization that receives payments for the services of a performing artist for purposes of the film production tax credit; K. "remittee" means a person that is entitled to payment of oil and gas proceeds by a remitter; and L. "remitter" means a person that pays oil and gas proceeds to any remittee. 1978 Comp., § 7-3A-2, enacted by Laws 2003, ch. 86, § 5; 2010, ch. 53, § 9; 2011, ch. 177, § 5; 2012, ch. 40, § 1.

NMSA 1978, § 7-3A-3 Withholding from oil and gas proceeds and net income

7-3A-3. Withholding from oil and gas proceeds and net income A. Except as otherwise provided in this section, a remitter shall deduct and withhold from each payment of oil and gas proceeds being made to a remittee for each quarter an amount equal to the rate specified in Subsection D of this section multiplied by the amount prior to withholding that otherwise would have been payable to the remittee. B. Except as otherwise provided in this section, a pass-through entity shall deduct and withhold from each owner's allocable share of net income for that calendar year an amount equal to the rate specified in Subsection D of this section multiplied by the owner's allocable share of that net income, reduced, but not below zero, by the amount required to be withheld from the owner's allocable share of net income under Subsection A of this section. C. The obligation to deduct and withhold from payments or allocable net income as provided in Subsections A and B of this section does not apply to payments that are made to: (1) a corporation whose principal place of business is in New Mexico or an individual who is a resident of New Mexico; (2) remittees with a New Mexico address as shown on internal revenue service form 1099-Misc or a successor form or on a pro forma 1099-Misc or a successor form for those entities that do not receive an internal revenue service form 1099-Misc; (3) the United States, this state or any agency, instrumentality or political subdivision of either; (4) any federally recognized Indian nation, tribe or pueblo or any agency, instrumentality or political subdivision thereof; or (5) organizations that have been granted exemption from the federal income tax by the United States commissioner of internal revenue as organizations described in Section 501(c)(3) of the Internal Revenue Code. However, the obligation to deduct and withhold from payments of allocable net income to organizations identified in this paragraph applies if that income constitutes unrelated business income. D. Except as provided in Subsection H of this section, the rate of withholding shall be set by a department directive; provided that the rate may not exceed the higher of the maximum bracket rate set by Section 7-2-7 NMSA 1978 for the taxable year or the maximum bracket rate set by Section 7-2A-5 NMSA 1978 for the taxable year; and provided further that remitters shall be given ninety days' notice of a change in the rate. E. If a remitter receives oil and gas proceeds from which an amount has been deducted and withheld pursuant to the Oil and Gas Proceeds and Pass-Through Entity Withholding Tax Act or a pass-through entity has deducted and withheld an amount pursuant to the Oil and Gas Proceeds and Pass-Through Entity Withholding Tax Act from the allocable share of net income of an owner that is also a pass-through entity, the remitter or payee pass-through entity may take credit for that amount in determining the amount the remitter or payee pass-through entity must withhold and deduct pursuant to this section. F. If the amount to be withheld from all payments to a remittee in a calendar quarter has not exceeded thirty dollars ($30.00) and a payment to a remittee is less than ten dollars ($10.00), no withholding is required. If the amount to be withheld from an owner's allocable share of net income in any calendar year is less than one hundred dollars ($100), no withholding is required. G. Except as provided in Subsection H of this section, at the option of a remitter or pass-through entity, a remitter or pass-through entity may agree with a remittee or an owner that the remittee or owner pay the amount that the remitter or pass-through entity would have been required to withhold and remit to the department on behalf of the remittee or owner pursuant to the Oil and Gas Proceeds and Pass-Through Entity Withholding Tax Act. The payments by the remittee or owner shall be remitted on the dates set forth in Section 7-3A-6 NMSA 1978 on forms and in the manner required by the department. H. Excluding wages, a personal services business shall deduct and withhold an amount equal to the owner's allocable share of net income multiplied by the highest rate for single individuals provided in Section 7-2-7 NMSA 1978. I. If the remittee or owner is an insurance company and falls under the provisions of Section 59A-6-6 NMSA 1978, no withholding is required pursuant to this section. 1978 Comp., § 7-3A-3, enacted by Laws 2003, ch. 86, § 6; 2010, ch. 53, § 10; 2011, ch. 177, § 6; 2012, ch. 40, § 2.

NMSA 1978, § 7-3A-4 Deductions considered taxes

7-3A-4. Deductions considered taxes Amounts deducted under the provisions of the Oil and Gas Proceeds and Pass-Through Entity Withholding Tax Act are a collected tax. A remittee who receives payment of oil and gas proceeds or an owner with an allocable share of net income does not have a right of action against the remitter or pass-through entity for the amount deducted and withheld from the oil and gas proceeds or an allocable share of net income. 1978 Comp., § 7-3A-4, enacted by Laws 2003, ch. 86, § 7; 2010, ch. 53, § 11; 2012, ch. 40, § 3.

NMSA 1978, § 7-3A-5 Remitters and pass-through entities liable for amounts deducted and withheld; exceptions

7-3A-5. Remitters and pass-through entities liable for amounts deducted and withheld; exceptions A. Every remitter or pass-through entity is liable for: (1) amounts required to be deducted and withheld by the Oil and Gas Proceeds and Pass-Through Entity Withholding Tax Act regardless of whether the amounts were in fact deducted and withheld; and (2) for the amounts that a remittee or an owner has agreed to remit pursuant to Subsection G of Section 7-3A-3 NMSA 1978, once the department has notified the remitter or pass-through entity that the remittee or owner has failed to remit. B. A remitter or pass-through entity is not liable for amounts required to be deducted and withheld by the Oil and Gas Proceeds and Pass-Through Entity Withholding Tax Act but not deducted or withheld if: (1) the remitter or pass-through entity fails to deduct and withhold the required amounts and if the tax against which the required amounts would have been credited is paid; or (2) the remitter's or pass-through entity's failure to deduct and withhold the required amounts is due to reasonable cause. 1978 Comp., § 7-3A-5, enacted by Laws 2003, ch. 86, § 8; 2010, ch. 53, § 12; 2012, ch. 40, § 4.

NMSA 1978, § 7-3A-6 Date payment due; form

7-3A-6. Date payment due; form A. Amounts withheld under the provisions of the Oil and Gas Proceeds and Pass-Through Entity Withholding Tax Act by a remitter are due on or before the twenty-fifth day of the month following the end of the calendar quarter when the taxes were required to be withheld. B. Amounts withheld under the provisions of the Oil and Gas Proceeds and Pass-Through Entity Withholding Tax Act by a pass-through entity are due on or before the due date of the federal tax return required for the pass-through entity. C. The amount withheld shall be remitted on a form and in a manner required by the department, provided that amounts withheld and remitted from oil and gas proceeds are kept distinct from every other tax or withheld amount. 1978 Comp., § 7-3A-6, enacted by Laws 2003, ch. 86, § 9; 2010, ch. 53, § 13; 2012, ch. 40, § 5.

NMSA 1978, § 7-3A-7 Statements of withholding

7-3A-7. Statements of withholding A. Every remitter shall: (1) file an annual statement of withholding for each remittee that: (a) is in electronic format and includes a form 1099-Misc or a successor form or on a pro forma 1099-Misc or a successor form for those entities that do not receive an internal revenue service form 1099-Misc; (b) is filed with the department on or before the last day of February of the year following that for which the statement is made; and (c) includes the total oil and gas proceeds paid to the remittee and the total amount of tax withheld for the calendar year; and (2) provide a copy of the annual statement of withholding to the remittee on or before February 15 of the year following the year for which the statement is made. B. The department shall develop and adopt rules regarding the filing of a report pursuant to this section and the attachment of form 1099-Misc or a successor form or a pro forma 1099-Misc or a successor form, if the remitter is not able to file those forms in an electronic format. C. Every remitter shall file an electronic report of the remittees who have certified that the remittee is responsible for filing the remittee's own oil and gas proceeds tax report and for paying the remittee's oil and gas proceeds tax liability due. D. Every pass-through entity doing business in New Mexico shall: (1) file an annual information return with the department that: (a) is filed on or before: 1) the due date of the entity's federal return for the taxable year; or 2) if the entity's taxable year is a calendar year, if the entity is approved by the department to use electronic media for filing and if the entity uses electronic media to file the annual information return, the end of the month in which the entity's federal return is due; (b) is signed by the business manager or one of the owners of the pass-through entity; and (c) contains all information required by the department, including the pass-through entity's gross income; the pass-through entity's net income; the amount of each owner's allocable share of the pass-through entity's net income; and the name, address and tax identification number of each owner entitled to an allocable share of net income; and (2) provide to each of its owners sufficient information to enable the owner to comply with the provisions of the Income Tax Act [Chapter 7, Article 2 NMSA 1978] and the Corporate Income and Franchise Tax Act [Chapter 7, Article 2A NMSA 1978] with respect to the owner's allocable share of net income. E. The department shall compile each year the annual statements of withholding received from the remitters and the annual information returns received from pass-through entities and compare the compilations with the records of corporations, individuals, estates or trusts filing income tax returns. 1978 Comp., § 7-3A-7, enacted by Laws 2003, ch. 86, § 10; 2010, ch. 53, § 14; 2012, ch. 40, § 6; 2015 (1st S.S.), ch. 2, § 5.

NMSA 1978, § 7-3A-8 Withheld amounts credited against income tax

7-3A-8. Withheld amounts credited against income tax The entire amount of oil and gas proceeds and an allocable share of net income upon which the tax was deducted and withheld or upon which payments were made by owners in lieu of withholding shall be included in the base income of the remittee for purposes of the Income Tax Act [Chapter 7, Article 2 NMSA 1978] and the Corporate Income and Franchise Tax Act [Chapter 7, Article 2A NMSA 1978]. The amount of tax deducted and withheld or payments made by owners in lieu of withholding pursuant to the Oil and Gas Proceeds and Pass-Through Entity Withholding Tax Act during the taxable year shall be credited against any income tax or corporate income tax due from the remittee or owner. 1978 Comp., § 7-3A-8, enacted by Laws 2003, ch. 86, § 11; 2010, ch. 53, § 15; 2012, ch. 40, § 7.

NMSA 1978, § 7-3A-9 Interpretation of act; administration and enforcement of act

7-3A-9. Interpretation of act; administration and enforcement of act A. The department shall interpret the provisions of the Oil and Gas Proceeds and Pass-Through Entity Withholding Tax Act. B. The department shall administer and enforce the Oil and Gas Proceeds and Pass-Through Entity Withholding Tax Act, and the Tax Administration Act [Chapter 7, Article 1 NMSA 1978] applies to the administration and enforcement of the Oil and Gas Proceeds and Pass-Through Entity Withholding Tax Act. 1978 Comp., § 7-3A-9, enacted by Laws 2003, ch. 86, § 12; 2010, ch. 53, § 16; 2011, ch. 139, § 1; 2025, ch. 130, § 65.

NMSA 1978, § 7-3A-10 Election of entity-level tax; credit

7-3A-10. Election of entity-level tax; credit A. A pass-through entity may elect on an annual basis to pay a tax at the entity level for a taxable year. The tax that may elected to be paid pursuant to this section may be referred to as the "entity-level tax". B. A pass-through entity electing to pay the entity-level tax shall make the election by filing a complete entity-level tax return with the department in the form and manner as prescribed by the department. The election shall be binding on all owners of the electing pass-through entity. The return shall be filed no later than the original or extended due date of the entity's federal partnership or S corporation return for the taxable year. Payment of the entity-level tax shall accompany or precede the filing of the return. C. The entity-level tax is imposed on the distributed net income of the pass-through entity for the taxable year. The rate of entity-level tax is equal to the higher of the maximum tax rate imposed pursuant to Section 7-2-7 NMSA 1978 or the maximum tax rate imposed pursuant to Section 7-2A-5 NMSA 1978 for the taxable year. D. Distributed net income of a pass-through entity shall equal the amount allocated and apportioned to New Mexico pursuant to the Uniform Division of Income for Tax Purposes Act [Chapter 7, Article 4 NMSA 1978] from the following: (1) the total income of the pass-through entity properly reported for federal income tax purposes plus, for partnerships, the amount of guaranteed payments other than premiums for health insurance paid by the partnership on behalf of a partner, less the net income or guaranteed payments properly allocated or made to: (a) the United States, this state or a political subdivision of either; (b) a federally recognized Indian nation, tribe or pueblo located wholly or partially in New Mexico, or any political subdivision thereof; (c) an organization that has been granted exemption from the federal income tax by the United States commissioner of internal revenue as an organization described in Section 501(c)(3) of the Internal Revenue Code; (d) a corporate partner that would properly include the income in the partner's New Mexico tax return as part of the partner's unitary business income; or (e) a pass-through entity that is an owner of the electing pass-through entity; and (2) less the amount of net capital gains that may be deducted pursuant to Section 7-2-34 NMSA 1978 and is properly allocated to owners who are subject to tax pursuant to the Income Tax Act [Chapter 7, Article 2 NMSA 1978]. E. A net operating loss shall not be included in the distributed net income calculated pursuant to Subsection D of this section but may be carried forward until exhausted. F. Pass-through entities electing to pay the entity-level tax shall make estimated payments of the tax on forms and in the manner as determined by the department. Amounts remitted pursuant to Subsection B of Section 7-3A-3 NMSA 1978 by entities electing to pay the entity-level tax shall be deemed payments of estimated entity-level tax. G. If, for a taxable year, the sum of the estimated payments of tax made by a pass-through entity pursuant to Subsection F of this section exceeds the amount of entity-level tax owed, the pass-through entity may apply for a refund of the difference. If, for a taxable year, the entity-level tax owed by a pass-through entity exceeds the sum of the estimated payments made by the pass-through entity, the pass-through entity shall remit the difference on or before the date the pass-through entity's entity-level tax is due. H. An owner of a pass-through entity electing to pay the tax imposed under this section may be allowed a tax credit in an amount equal to the owner's share of the tax; provided that the pass-through entity paid the tax and furnished sufficient information on the pass-through entity's tax return to identify that owner. If the amount of the credit exceeds the amount of the owner's tax liabilities pursuant to the Income Tax Act or the Corporate Income and Franchise Tax Act [Chapter 7, Article 2A NMSA 1978], the excess shall be refunded to the owner. I. As used in this section: (1) "guaranteed payments" means the guaranteed payments described in Section 707(c) of the Internal Revenue Code, as that section may be amended or renumbered; (2) "net capital gain" means "net capital gain" as defined in Section 1222(11) of the Internal Revenue Code; (3) "net operating loss" means "net operating loss" as defined in Section 7-2-2 NMSA 1978; and (4) "pass-through entity" means a partnership or corporation that elects to pass income, losses, deductions and credits through to the entity's owners for federal tax purposes. Laws 2022, ch. 46, § 3 2023, ch. 159, § 3.

Source: New Mexico Compilation Commission (nmonesource.com)URL: https://nmonesource.com/nmos/nmsa-unanno/en/item/18507/index.doFetched: 10/20/2026