New Mexico Taxation and Revenue Department Holds Oil and Gas Royalty Payments Component of Corporate Income Tax Property Factor.

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Ryan, a leading global tax services firm with the largest indirect tax practice in North America, today announced that the New Mexico Taxation and Revenue Department ("Department") recently released its decision in re of the Protest of Chevron USA, Inc., holding that oil and gas royalty payments are “annual rents” for purposes of calculating the New Mexico corporate income tax apportionment property factor.

Ryan is a leading global tax services firm, with the largest indirect tax practice in North America and the seventh largest corporate tax practice in the United States.

Ryan, a leading global tax services firm with the largest indirect tax practice in North America, today announced that the New Mexico Taxation and Revenue Department ("Department") recently released its decision in re of the Protest of Chevron USA, Inc., holding that oil and gas royalty payments are “annual rents” for purposes of calculating the New Mexico corporate income tax apportionment property factor.

New Mexico has adopted the three-factor income tax apportionment formula outlined in the Uniform Division of Income for Tax Purposes Act (UDIPTA). Further, New Mexico uses the UDIPTA method of valuing property rented, not owned. This method provides that a taxpayer calculates the value of rental property by multiplying the net annual rental rate by eight.

In support of its position that oil and gas royalty payments are not included in the property factor, the Department cited to a Multistate Tax Commission (MTC) model regulation, under which “royalties based on extraction of natural resources” are specifically excluded from the definition of “annual rent.” Although New Mexico is an MTC Compact Member, the Department has not adopted this portion of the MTC model regulation. Emphasizing this fact, the Hearing Officer held that the oil and gas royalty payments at issue met the Department’s regulatory definition of “annual rents” as “any amount payable for the use of real or tangible personal property.”

As a result of this decision, New Mexico includes oil and gas royalty payments in its corporate income tax property factor.

About Ryan
Ryan is a leading global tax services firm, with the largest indirect tax practice in North America and the seventh largest corporate tax practice in the United States. Headquartered in Dallas, Texas, the Firm provides a comprehensive range of state, local, federal, and international tax advisory and consulting services on a multi-jurisdictional basis, including audit defense, tax recovery, credits and incentives, tax process improvement and automation, tax appeals, tax compliance, and strategic planning. In 2010, Ryan received the International Service Excellence Award from the Customer Service Institute of America (CSIA) for its commitment to world-class client service. Empowered by the award-winning myRyan work environment, which is widely recognized as the most innovative in the tax services industry, Ryan’s multi-disciplinary team of more than 900 professionals and associates serves many of the world’s most prominent Fortune 1000 companies. More information about Ryan can be found at http://www.ryan.com.

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