Oil and gas industry supports efforts to return lands to their native state
It is almost one of the 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.
Fast-forward 51 years to 1913 when federal taxes were finally ratified through the Sixteenth Amendment, 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. 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. Throughout the next century of production, New Mexico would levy a variety of taxes on the industry.
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, health care, 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.
Today, only a small percentage of the collected Conservation Tax currently goes to the Reclamation Fund. The rest is allocated to the General Fund.
This reclamation work is typically completed by the oil and 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. The New Mexico Oil and Gas Association will continue to work with legislators 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.