New Mexico Gross Receipts Tax Notices: What Nonoperating Working Interest Owners Should Know

Nonoperating oil and gas companies with interests in New Mexico wells may be receiving correspondence from the New Mexico Taxation and Revenue Department asserting that gross receipts tax (GRT) is due because a portion of the company’s income is apportioned to the state. These notices can raise questions, especially for organizations that have historically viewed themselves as investors rather than service providers or sellers of taxable property.

An income tax filing obligation and a GRT obligation are not the same thing. Companies should carefully evaluate the basis for any assessment or notice before concluding that GRT is due.

Apportionment Does Not Automatically Create Gross Receipts Tax Liability

Many oil and gas companies file state income tax returns in jurisdictions where they own producing assets. As part of those filings, income may be apportioned to New Mexico based on the state’s sourcing and apportionment rules. The existence of apportioned income is often relevant for income tax purposes. Gross receipts tax, however, is a separate tax regime with its own tax base and statutory framework.

For nonoperating working interest owners, a key question is whether the company is engaging in a taxable transaction that generates gross receipts subject to New Mexico GRT. Simply receiving a share of production revenues from a working interest is not the same as necessarily engaging in a transaction that generates taxable gross receipts.

Why Companies May Be Receiving Notices

State tax agencies continue to use available data and information to identify entities with New Mexico activity. When the department identifies a company with New Mexico-source income but no GRT registration or reporting history, it may issue a “Notice of Intent to Assess” seeking additional information.

That inquiry should not be viewed as a determination that tax is owed. Companies should respond promptly and carefully evaluate the facts supporting the department’s position.

The Bottom Line

For nonoperating oil and gas companies, the presence of New Mexico-source income does not automatically mean New Mexico gross receipts tax is due. A company may have income apportioned to New Mexico while lacking the type of taxable receipts required to create GRT liability.

Organizations receiving these notices should review the specific activities generating their New Mexico revenue and evaluate whether those activities create taxable gross receipts under New Mexico law. A notice may warrant further analysis, but it should not be treated as confirmation that GRT is owed.

How Weaver Can Help

If your organization has received a notice or has questions about its New Mexico tax obligations, Weaver can help. Our state and local tax professionals work with oil and gas companies to evaluate notices from the New Mexico Taxation and Revenue Department, assess potential GRT exposure and determine an appropriate response based on the facts and applicable tax rules. Contact us.

Authored by Ben Klophaus and Mayur Naik

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