This week we had one most dreaded days of the year: Tax Day 2024. Federal income taxes have been with the American taxpayer since 1862 when President Abraham Lincoln signed into law a revenue-raising measure to help pay for Civil War expenses. Over the next 49 years, federal taxes would be reduced, repealed, revived, and declared unconstitutional before finally being solidified in American history in 1913 through the ratification of the Sixteenth Amendment and just as the threat of the first World War loomed. The amendment also gave Congress the power to levy the first federal corporate income tax. The 1-percent rate would grow exponentially over time.
At the same time closer to home, New Mexico was a brand-new state and sparsely populated with a small industry base. To generate a revenue base, the state taxed almost every type of commerce. New Mexico, much like today, was unique among other states in taxing nearly all services and leases, in addition to tangibles in a very broad-based gross receipts tax. During that time, an emerging industry would change the state’s economics and provide a tax base that would enable New Mexico to provide vital services that we rely on even today.
In 1924, the first commercial oil well became operational near Artesia and the State Land Office received its first royalty payment of $125 for oil and gas produced on state land. By 1927, a successful well was struck in Lea County and exploration continued. Just two years later, the discovery of the expanse of the oil and gas resources under Hobbs and throughout Lea County quickly earned New Mexico a place among the top-ten oil-producing states in the nation. Throughout a century of production, New Mexico has levied a variety of taxes on the industry as it has evolved.
Today, New Mexico is the nation’s second-largest oil-producing state and the industry is the state’s economic engine. In 2023, taxes and royalty fees paid by the oil and gas industry accounted for $7.5 billion, or about 50% of all of New Mexico’s general fund revenue. Another $6.4 billion went to non-general funds last year. For context, legislators passed, and the governor signed a record state budget of $10.2 billion for 2024.
Oil and gas companies pay a variety of taxes, including the New Mexico severance tax, conservation tax, emergency school tax, natural gas processor tax, production tax, and equipment tax. Those taxes help fund our public schools, healthcare, infrastructure, and other vital services throughout the state.
The New Mexico Oil and Gas Conservation Tax was levied on oil and gas operators in the 1950s. In the 1970s, the Reclamation Fund was established and is funded by the Conservation Tax to ensure proper reclamation efforts on retired oil and gas facilities and wells that require plugging to ensure our lands our returned to their native state Due to changes in funding allocations over the years, only a small percentage of the collected Conservation Tax currently goes to the Reclamation Fund. The rest is allocated to the General Fund.
At the end of an oil well’s productivity, it must be plugged. This reclamation work is typically completed by the oil in gas companies. However, there are circumstances where the state completes the reclamation work and pays for those efforts from the Reclamation Fund to ensure there is no burden to the individual taxpayers. In 2022, the oil and gas industry plugged 451 wells throughout New Mexico. The state plugged 49 wells at an estimated cost of $3.4 million paid by the Reclamation Fund through taxes paid by industry. Last year, the New Mexico Legislature considered a bipartisan bill that would have increased the allocation to the Reclamation Fund to support efforts to return lands to their native state. NMOGA will continue to with work legislators with the to encourage continued consideration of the legislation
The New Mexico oil and gas industry is proud to be a part of the state’s history and economic base for the past 100 years. As the oil and gas industry evolves, so does New Mexico. With the evolution of the state and its tax structure, our industry’s dedication to New Mexico remains vibrant and vital.
Missi Currier is a Carlsbad native and President & CEO of the New Mexico Oil and Gas Association