Tax on Royalties Texas and New Mexico

[DonFromTexas]

Wading thru the tax situation for the first time I have found a lot of good information, but am left with a couple of questions:

1. As a Texas resident with New Mexico only royalties, how does one go about New Mexico taxes?
2. Can I assume that the NM State amounts withheld would be returned to the owner? Texas has no state income tax. Does NM have a “non resident” filing system?

[TODD_M_Baker]

The answer lies in the tax code of the state where the income is earned. You will file a New Mexico tax return for the income earned from the NM royalty.

[TennisDaze]

You file a nonresident New Mexico return which has lines for federal income and for New Mexico State income. You are assessed New Mexico income tax on New Mexico income. You are able to deduct royalty related expenses on Schedule E of federal return, such as legal fees. You must attach your 1099 showing New Mexico income snd the New Mexico income taxes withheld by operator. Generally, operators withhold maximum 5% tax rate on gross NM royalties and your taxes will be assessed on lower net royalty income less direct expenses, so you will get a partial refund. Not sure what NM state depletion rate is as many state rates differ from federal rate. You may want to have a CPA help you with NM tax return.

[Willy]

I file in Louisiana and my CPA files my non-resident tax forms for New Mexico and Oklahoma. I have always received back any that was withheld from royalty payments as refunds. Adds to the cost of preparation, however and with the decline of production since the pandemic, sometimes doesn’t the cost.