N.M. Admin. Code § 3.6.5.30

Current through Register Vol. 35, No. 23, December 10, 2024

Section 3.6.5.30 - SPECIAL METHOD OF VALUATION - MINERAL PROPERTY AND PROPERTY USED IN CONNECTION WITH MINERAL PROPERTY - GENERAL

A.MINERAL PROPERTY - SURFACE VALUE FOR AGRICULTURAL OR OTHER PURPOSES: The valuation methods to be used in determining the "surface value for agricultural or other purposes or class one productive of nonproductive mineral property when the surface interest is held in the same ownership as the mineral interests" as that phrase is used in Paragraph (2) of Subsection B of Section 7-36-23 NMSA 1978 are those methods described in Section 7-36-15 NMSA 1978 and regulations thereunder except that, when the surface is used primarily for agricultural purposes, the land shall be valued in accordance with Section 7-36-20 NMSA 1978 and regulations thereunder. Subsection E of Section 7-36-23 NMSA 1978 applies only as a valuation method for the mineral in place in mineral property determined to be class one nonproductive mineral property.

B.MINERAL PROPERTY - IMPROVEMENTS, ETC., HELD OR USED IN CONNECTION WITH ALL CLASSES OF MINERAL PROPERTY:

(1) The valuation methods to be used in valuing "improvements, equipment, materials, supplies and other personal property held or used in connection with all classes of mineral property" as those terms are used in Paragraph (1) of Subsection B of Section 7-36-23 NMSA 1978 are those methods described in Section 7-36-33 NMSA 1978 and regulations thereunder. Equipment and other personal property used in "construction" as that term is defined in Paragraph (3) of Subsection C of Section 7-36-2 NMSA 1978 shall be valued pursuant to Section 7-36-33 NMSA 1978 and regulations thereunder.

(2) "Improvements,...held or used in connection with all classes of mineral property", as that phrase is used in Paragraph (1) of Subsection B of Section 7-36-23 NMSA 1978 includes, but is not limited to, improvements constructed on property other than mineral property as defined in Section 7-36-22 NMSA 1978 when those improvements are held or used in connection with any class of mineral property. The value of the land upon which such improvements are constructed is to be a part of the value of the improvements. Therefore, property such as office buildings, company houses and processing facilities affixed to the land which is held or used in connection with any class of mineral property is to be valued by the division either when such improvements are on mineral property or when such improvements are not on mineral property. The methods for valuation of these improvements are those methods described in Section 7-36-33 NMSA 1978 and regulations thereunder. The methods for valuation of the land upon which these improvements are located are those methods described in Section 7-36-15 NMSA 1978 and regulations thereunder.

(3) The valuation of construction work in progress for uncompleted improvements on mineral property subject to valuation under Section 7-36-23 or 7-36-25 NMSA 1978 is fifty percent of the actual amount expended for the uncompleted improvements as of January 1 of the tax year.

C.MINERAL PROPERTY - SAND, GRAVEL AND CALICHE - ANNUAL NET PRODUCTION VALUE: The "annual net production value", as that phrase is used in Subsection F of Section 7-36-23 NMSA 1978, for sand, gravel and caliche may be reported at a value of fifty cents ($.50) per ton, without any deductions, at the election of the person reporting this mineral property to the division. If the division determines that a value of fifty cents ($.50) per ton for this mineral property is less than the annual net production value calculated under Subsection F of Section 7-36-23 NMSA 1978, the division may disallow the election and require reporting of market values, royalties, direct costs, depreciation and other information determined necessary by the division.

D.MINERAL PRODUCT - SCORIA, PUMICE AND CINDERS - ANNUAL NET PRODUCTION VALUE:

(1) The "annual net production value", as that phrase is used in Subsection F of Section 7-36-23 NMSA 1978, for "construction grade" scoria, pumice and cinders may be reported at a value representing twenty five percent (25%) of the gross selling price, without any deductions, at the election of the person reporting this mineral property to the division. If the division determines that a value represented by twenty five percent (25%) of the gross selling price for this mineral property is less than the annual net production value calculated under Subsection F of Section 7-36-23 NMSA 1978, the division may disallow the election and require reporting of market values, royalties, direct costs, depreciation and other information determined necessary by the division.

(2) The "annual net production value", as that phrase is used in Subsection F of Section 7-36-23 NMSA 1978, for "landscape" scoria, pumice and cinders may be reported at a value representing thirty five percent (35%) of the gross selling price, without any deductions, at the election of the person reporting this mineral property to the division. If the division determines that a value represented by thirty five percent (35%) of the gross selling price for this mineral property is less than the annual net production value calculated under Subsection F of Section 7-36-23 NMSA 1978, the division may disallow the election and require reporting of market values, royalties, direct costs, depreciation and other information determined necessary by the division.

(3) For purposes of Section 3.6.5.30 NMAC, the term "construction grade" means all material sold for or used as concrete aggregate and similar purposes. The term "landscape" means all material sold for or used as a decorative material. The terms "scoria" and "cinders", as used in Section 3.6.5.30 NMAC, do not include "fines" which are the result of sorting certain mineral products.

E.MINERAL PROPERTY - MARKET VALUE:

(1) The phrase "market value" as used in Paragraphs (1) and (2) of Subsection F of Section 7-36-23 NMSA 1978 means the amount for which all mineral production was sold during the year in which net production value is being determined provided, the sale or sales were between willing buyers and willing sellers in the open market in the usual and ordinary course of trade and competition and both sellers and buyers were equally free to bargain. The phrase "market value" includes bonus or subsidiary payments in whatever form they may be received.

(2) If the market value of all or a part of the mineral production, during the year in which net production value is being determined, cannot be determined under the preceding paragraph because the mineral production is not sold, is used or consumed or is not sold under the conditions described in the preceding paragraph, then the market value of the mineral production is that reflected by sales of comparable mineral production and the application of generally accepted appraisal techniques. In using the method of valuation described in this paragraph, the division considers and makes appropriate adjustments to the value reflected by sales of comparable mineral production to account for the existence of a demand for, and the accessibility of a market for, the mineral production. In determining market value under this method, the division also compares the "gross income from the property" determined for federal income tax purposes under Section 613 of the United States Internal Revenue Code of 1986, as amended or renumbered. Section 3.6.5.30 NMAC, however, does not adopt the valuation methods described in United States treasury regulations for Section 613, unless specifically indicated herein.

(3) If the market value of all or a part of the mineral production, during the year in which net production value is being determined, cannot be determined under the methods set forth in the preceding two paragraphs, then market value shall be determined through the use of the "proportionate profits method" as that phrase is described in United States treasury regulations, as amended or renumbered.

F.MINERAL PROPERTY - "PRODUCTION OF ALL MINERALS" AND "TREATING" DEFINED:

(1) The phrase "production of all minerals" as used in Paragraphs (1) and (2) of Subsection F of Section 7-36-23 NMSA 1978 means the mineral when and during the last extraction, milling, treating or reducing on it is performed by or for the account of the owner or operator, irrespective of when the mineral or the mineral in other material may have been mined or when the mineral or mineral in other material may be sold, exchanged, consumed or further processed by or for the account of the owner or operator.

(2) The term "treating" as used in Subparagraph (b) of Paragraph (1) and Subparagraph (b) of Paragraph (2) of Subsection F of Section 7-36-23 NMSA 1978 and Section 3.6.5.30 NMAC means a process which changes a mineral substance removed from the earth by making it easier to handle and eliminating unwanted fractions by any method, whether manipulative, thermal, chemical or electrolytic. "Treating" is not manufacturing. Therefore, activities such as making copper tubing, making steel (but not reducing ore to metallic iron) and manufacturing automobiles are not "treating".

G.MINERAL PROPERTY - DIRECT COSTS - DEDUCTION GUIDELINES:

(1) The phrase "direct costs" as used in Subparagraph (b) of Paragraph (1) and Subparagraph (b) of Paragraph (2) of Subsection F of Section 7-36-23 NMSA 1978, means the immediate or proximate costs of the activities described in the subsection as opposed to collateral or indirect costs. Evidence that the costs were actually incurred does not, without additional evidence, establish that the costs are direct costs.

(2) "Direct costs...determined under generally accepted accounting principles..." also means variable costs or costs that vary directly with the volume of production, as opposed to indirect costs which means fixed or period costs which are incurred regardless of the volume of production.

(3) Direct costs are required to have been actually incurred during the year in which they are claimed. Direct costs are required to be determined under generally accepted accounting principles and if this test is not met, the consistent application by the taxpayer of accounting principles which are not generally accepted does not qualify the cost as a deduction.

(4) Under generally accepted accounting principles, "direct costs" do not usually include:

(a) salaries of any persons not actually engaged in the extracting, milling, treating, reducing, transporting and selling of the minerals or in the immediate management or superintendence of these activities;

(b) any amounts paid for improvements or the purchase of machinery, equipment, appliances or for construction of mills, reduction works, transportation facilities or other buildings or structures;

(c) any amounts which, under generally accepted accounting principles consistently applied by taxpayer, are capitalized;

(d) property taxes;

(e) income taxes, both state and federal;

(f) sales or gross receipts taxes included in the cost of items which are not deductible as direct costs;

(g) insurance premiums for public liability and property damage insurance, except when this insurance is required by law, such as when taxpayer's trucks are using public highways;

(h) life insurance on executives;

(i) interest on borrowed monies;

(j) depletion of reserves;

(k) mine and mill development costs;

(l) mine and mill "startup" costs, such as calibration of plant and equipment;

(m) exploration costs;

(n) fire and extended coverage insurance;

(o) administrative costs incurred outside New Mexico;

(p) contract costs which are not incurred as "direct costs" for activities described in Subparagraph (b) of Paragraph (1) and Subparagraph (b) of Paragraph (2) of Subsection F of Section 7-36-23 NMSA 1978;

(q) royalties, other than those described in Subparagraph (a) of Paragraph (1) and Subparagraph (a) of Paragraph (2) of Subsection F of Section 7-36-23 NMSA 1978, and Subparagraph (a) of Paragraph (5) of Subsection G of Section 3.6.5.30 NMAC;

(r) franchise taxes;

(s) legal and accounting costs;

(t) dues and contributions;

(u) institutional advertising costs, which are not directly related to selling the mineral but are for the purpose of establishing goodwill; and

(v) other indirect costs.

(5) Under generally accepted accounting principles, "direct costs" do usually include:

(a) royalties paid to labor unions representing employees of the taxpayer if the royalties are direct costs of the activities described in Subparagraphs (b) of Paragraph (1) and Subparagraph (b) of Paragraph (2) of Subsection F of Section 7-36-23 NMSA 1978;

(b) severance and resources excise taxes;

(c) sales or gross receipts taxes included in the cost of items which are deductible as direct costs;

(d) payroll taxes and unemployment taxes, both federal and state, if the payroll services upon which these taxes are imposed are deductible as direct costs;

(e) workman's compensation insurance and employees health and accident insurance for the taxpayer's employees, the costs of whose services are direct costs;

(f) assaying and sampling; and

(g) other direct costs.

H.MINERAL PROPERTY - COSTS OF DEPRECIATION - DEDUCTION GUIDELINES: The phrase "costs of depreciation" as used in Subparagraphs (c) of Paragraph (1) and Subparagraph (c) of Paragraph (2) of Subsection F of Section 7-36-23 NMSA 1978 means a reasonable allowance for the exhaustion, wear and tear and obsolescence of property actually used in the activities described in those subsections. Property which is not actually used, such as property which is stored or held for future use, is not entitled to the deduction for costs of depreciation.

I.MINERAL PROPERTY - MICA - ANNUAL NET PRODUCTION VALUE: The "annual net production value", as that phrase is used in Subsection F of Section 7-36-23 NMSA 1978, for mica may be reported at a value of eight dollars ($8) per cubic yard, without any deductions, at the election of any person reporting this mineral property to the division. If the division determines that a value of eight dollars ($8) per cubic yard for this mineral property is less than the annual net production value calculated under Subsection F of Section 7-36-23 NMSA 1978, the division may disallow the election and require reporting of market values, royalties, direct costs, depreciation and other information determined necessary by the division.

N.M. Admin. Code § 3.6.5.30

3/23/83, 8/28/86, 10/27/87, 12/29/94, 8/31/96; 3.6.5.30 NMAC - Rn & A, 3 NMAC 6.5.30, 4/30/01, A, 6/29/01