N.M. Code R. § 3.18.6.8 - REASONABLE VALUE WHEN ACTUAL PRICE NOT DETERMINED AT THE PRODUCTION UNIT
A. Reasonable value
shall be determined in accordance with Section 3.18.6.8 NMAC when actual price
is established in a transaction among affiliated persons or established at a
point other than at the production unit.
(1)
Example 1: P sells natural gas to a California utility. Under the contract, P
is paid for natural gas delivered to the California border; P is responsible
for arranging and paying for the necessary transportation to California. In
this situation, value is not established for the product at the production
unit.
(2) Example 2: X, the owner
of a refinery, posts a price at which X will purchase oil delivered to the
refinery. P, a producer, sells X oil from wells located ten miles from the
refinery. P pays for transporting the oil to the refinery. In this situation,
value is not established for the product at the production unit.
B. Non-affiliated persons. When
actual price is established in an arm's-length transaction among non-affiliated
persons, reasonable value shall be determined by subtracting, in accordance
with Sections 3.18.6.9 and 3.18.6.10 NMAC, from actual price received the value
added by transportation from the production unit, processing in a natural gas
processing plant or both.
(1) Example: P
enters into an arm's-length contract with U, an out-of-state utility, for sale
of natural gas at $2.00 per mcf delivered to U. P then enters arm's-length
contracts with X (a gathering system operator), Y (a natural gas processing
plant operator) and Z (a mainline pipeline) to transport and process P's gas. X
charges 5 cents per mcf to transport P's gas from P's production unit to Y's
processing plant. Y charges 20 cents per mcf to process the gas. Z charges 25
cents per mcf to transport P's gas from Y's plant to U. P is not affiliated
with U, X, Y or Z. "Actual price" at the production unit, as that term is
defined in Paragraph 3.18.1.7E(1) NMAC, then, is $1.50 per mcf; this is the
base upon which tax is to be paid. It shall be reported as $2 gross, with 30
cents in transportation deductions and 20 cents in processing
deductions.
(2) This version of
Subsection 3.18.6.8B NMAC is applicable to production occurring on or after
July 15, 1998.
C.
Affiliated persons. When actual price is established in a transaction among
affiliated persons or among non-affiliated persons in a non-arm's-length
transaction, reasonable value shall be determined in accordance with the first
applicable benchmark.
D. Benchmark
1: Reasonable value shall be the average actual price received, less applicable
processing and transportation adjustments, provided that:
(1) at least fifty percent of sales or
purchases from the same field are arm's-length transactions; and
(2) the price received or paid falls within
the range of the prices received or paid for comparable products under
arm's-length transactions of comparable terms.
E. Benchmark 2: Reasonable value shall be the
actual price received, less applicable processing and transportation
adjustments, from the first sale occurring between non-affiliated persons in an
arm's-length transaction. However, this reasonable value can never be less than
the price actually received, less applicable processing and transportation
adjustments, in the first transaction with an affiliate.
F. Benchmark 3: If the reasonable value
cannot be determined under preceding benchmarks, then the department may permit
or require the taxpayer to use any other method which reasonably measures the
value of product. This may include values determined under arm's-length
contracts between non-affiliates for comparable product in nearby field, prices
received in spot sales or other reliable sources of price or market
information.
G. In determining
comparability of product under Section 3.18.6.8 NMAC, the department will
consider the following factors: time of execution, duration, market or markets
served, terms, quality, volume and such other factors as may be
appropriate.
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