Beginning January 1, 2014, New Mexico will begin phasing in a single sales factor apportionment methodology for corporations whose principal business activity is manufacturing.
For the purposes of apportioning income, “manufacturing” excludes construction, farming, power generation, and processing natural resources including hydrocarbons.
Services that are exported from the state are not subject to New Mexico gross receipts tax. These services must be produced by a business with a New Mexico office, sold to an out-of-state buyer, and delivered and initially used out-of-state.
A corporation (or family of corporations filing together) with income from sources within New Mexico as well as from sources outside the state, apportions the income based on a three-factor formula. New Mexico taxes the total corporate income multiplied by the average proportion of corporate sales, payroll and property in New Mexico. The three factors (sales, payroll and property) have equal weight (33.33% each) in the formula.
For purposes of electing the four-factor apportionment method, “manufacturing” excludes construction, farming, power generation and processing of natural resources, while allowing certain natural-gas-fired, wholesale power plants to qualify. The taxpayer, having elected to use the double-weighted formula, must use it for at least three consecutive years.
Industrial Revenue Bonds
Industrial Revenue Bonds can be issued by New Mexico communities to exempt companies from most of the property taxes on land, buildings and equipment. Communities typically grant IRB’s
abating between 50 to 95% of property taxes for 20 to 30 years, and Gross Receipts Taxes on equipment are also eliminated through this process. As a real life example, “Company X” announced a new manufacturing plant in New Mexico that would involve an investment of $192 million in land and building and $345 million in equipment, and was awarded an IRB
by the local community that abated 95% of the property taxes for a 20 year period. After taking depreciation into account, the company’s total savings amounted to $68.5 million through this one incentive program.
Aerospace & Defense
Aircraft Manufacturing Tax Deduction
Receipts of an aircraft manufacturer or affiliate from selling aircraft or aircraft parts, or from selling services performed on aircraft or aircraft components or from selling aircraft flight support, pilot training or maintenance training services may be deducted from gross receipts.
Aircraft Maintenance or Remodeling Tax Deduction
Receipts from maintaining, refurbishing, remodeling or otherwise modifying a commercial or military carrier (aircraft) over 10,000 pounds gross landing weight may be deducted from gross receipts.
Space Gross Receipts Tax Deductions
There are four separate deductions connected with the operation of a spaceport in New Mexico. The four deductions are:
Receipts from launching, operating or recovering space vehicles or payloads
Receipts from preparing a payload in New Mexico
Receipts from operating a spaceport in New Mexico
Receipts from the provision of research, development, testing and evaluation services for the United States Air Force operationally responsive space program
“Space” is defined as any location beyond altitudes of 60,000 feet above mean sea level. “Payload” means a system, subsystem or other mechanical structure designed and constructed to perform a function in space. “Space operations” is defined as the process of commanding and controlling payloads in space. “Spaceport” is defined as the installation and related facilities used for the launching, landing, operating, recovering, servicing and monitoring of vehicles capable of entering or returning from space.
Texas/Mexico Border Residents’ Tax Exemption
Non-resident employees may allocate their compensation to their home state. Since Texas does not have a personal income tax, Texas residents working at the New Mexico enterprise will not have to pay any state income tax on their compensation from the enterprise. The enterprise must be a manufacturer physically located within 20 miles of the Mexican border, and have at least 5 employees who are New Mexico residents and not be receiving Job Training Incentive Program funds.
Fee-Free Zones Near the Mexican Border
This law exempts from the trip tax the use of New Mexico highways by commercial motor carrier vehicles while operating exclusively within 10 miles of a border with Mexico in conjunction with crossing the border with Mexico. This law also exempts from weight distance tax the use of New Mexico highways by commercial motor carrier vehicles while operating exclusively within 10 miles of a border with Mexico in conjunction with crossing the border with Mexico.
Energy & Natural Resources
Advanced Energy Product Manufacturer’s Tax Credit
Manufacturers of advanced energy vehicles, fuel cell systems, renewable energy systems or any component of an advanced energy vehicle, fuel cell system or renewable energy system or components for integrated gasification combined cycle coal facilities and equipment related to the sequestration of carbon from integrated gasification combined cycle plants, may qualify for a tax credit of 5% of the taxpayer’s qualified expenditures and may be deducted from the taxpayer’s modified combined tax liability. Unused portions of the credit may be carried forward for five years.
Renewable Energy Production Tax Credit
Each qualified energy generator may earn an income tax credit of 1 cent ($.01) per kilowatt-hour for the first 400,000 megawatt-hours ( equivalent to 400,000,000 kilowatts) of electricity produced using a qualified energy source for 10 consecutive years, beginning with the first year of production.
Advanced Energy Tax Credits
Advanced energy facilities, such as solar thermal electric, advanced technology coal, or recycled energy, may qualify for up to $60 million in credits. The credit is equal to 6% of facility development and construction expenditures.
Wind Energy Equipment Gross Receipts Tax Deduction
New Mexico provides a gross receipts tax deduction for receipts from selling wind turbines, nacelles, rotors, blades and related equipment to a state or federal government entity.
Biomass-Related Equipment Compensating Tax Deduction
The value of equipment such as a boiler, turbine-generator, storage facility, feedstock processor, interconnection transformer or biomass material used for bio-power, bio-fuels, or bio-based products may be deducted in computing the compensating tax due.
Bio-Fuels Production and Sales Tax Incentive
Provides a tax credit on blended biodiesel fuels (a minimum of 2% biodiesel). Gross receipts and compensating tax may be deducted for installing biodiesel blending infrastructure up to $50,000 per facility or $1 million per year.
Technology Jobs Tax Credit
This credit has two parts: a basic credit and an additional credit, each equal to 4% of the qualified expenditures on qualified research at a qualified facility. The credit amount doubles for expenditures in facilities located in rural New Mexico (as defined for this tax credit as anywhere outside Rio Rancho or more than 3 miles outside Bernalillo, Dona Ana, San Juan or Santa Fe counties).
Expenditures: Includes a wide range of non-reimbursed expenses such as payroll, consultants and contractors performing work in New Mexico, software, equipment, technical manuals, rent, and operating expenses of facilities.
Research: Must be technological in nature and constitute elements of a process of experimentation leading to new or improved function, performance or reliability (not cosmetic, style).
Facility: A building or group, with land and machinery, equipment and other real or personal property used in connection with the operation of the facility; excludes national labs.
Rates & Terms:
Basic credit: The taxpayer claims the credit within one year following the end of the year in which the expenditure was made. The credit amount is applied against the taxpayer’s state gross receipts, compensating and withholding liabilities until the credit is exhausted.
Additional credit: A taxpayer earns the additional credit by increasing its payroll. The annual payroll must increase by at least $75,000 over the base period and by at least $75,000 for each $1 million in qualified expenditures (equivalent to $40,000 in credit) it wishes to claim. The base period floats; it is defined as the 12-month period ending on the day one year prior to the day the taxpayer applies for the additional credit. The base period payroll amount is also to be adjusted for inflation so that merely keeping up with the inflation will not earn any credit. The credit is not refundable, but excess credit amounts may be carried forward.
R&D Small Business Tax Credit
A qualified R&D small business is eligible for a credit equal to the sum of all gross receipts taxes, compensating taxes or withholding taxes due to the state for up to three years.
Qualified research is defined as that undertaken for the purpose of discovering information that is technological in nature and the application of which is intended to be useful in the development of a new or improved business component and in which substantially all activities constitute elements of a process of experimentation related to new or improved function, performance, reliability or quality, but not related to style, taste, cosmetic or seasonal design factors.
Qualified R&D small business means a business that:
Employs no more than 25 employees in any prior calendar month
Had total revenue of no more than $5 million dollars in any prior fiscal year.
Did not in any prior calendar month have more than 50% of its voting securities or other equity interest with the right to designate or elect the board of directors or other governing body of the qualified business owned directly or indirectly by another business
Has made qualified research expenditures for the period of 12 calendar months ending with the month for which the credit is sought of at least 20% of its total expenditures for those 12 months.
Angel Investment Credit
A taxpayer who files a New Mexico income tax return and who is a “qualified investor” may take a tax credit of up to $25,000 (25% of a qualified investment of not more than $100,000) for an investment made in a New Mexico company that is engaging in high-technology research or manufacturing. The taxpayer may claim the angel investment credit for up to two qualified investments in a taxable year, provided that each investment is in a different qualified business. Any portion of the tax credit remaining unused at the end of the taxpayer’s taxable year may be carried forward for three consecutive years.
Agricultural Business Tax Deductions and Exemptions
Gross receipts tax deductions are available for selling to agribusinesses:
Feed for livestock, including the baling wire or twine used to contain the feed, fish raised for human consumption, poultry or animals raised for hides or pelts and seeds, roots, bulbs, plants, soil conditioners, fertilizers, insecticides, germicides, insects, fungicides, weedicides and water for irrigation
Warehousing, threshing, cleaning, harvesting, growing, cultivating or processing agricultural products including ginning cotton, and testing and transporting milk. Gross receipts tax exemptions are permitted for feeding, pasturing, penning, handling or training livestock and, for agribusinesses, selling livestock, live poultry and unprocessed agricultural products, hides and pelts.
Beer and Wine Producers Preferential Tax Rate
Microbreweries producing less than 5,000 barrels of beer annually and small wineries producing less than 560,000 liters of wine per year qualify for a preferential tax rate.
The Liquor Excise Tax Act imposes taxes on beer, wine and spirituous liquors. The basic tax rate for wine is 45 cents per liter. Wine produced by a small vintner (definition in opening sentence above) carries a tax of 10 cents per liter on the first 80,000 liters and 20 cents on production over that level up to 560,000 liters. The basic tax rate for beer produced by a brewery is 41 cents; beer produced by a microbrewery (defined above) is taxed at 8 cents per gallon.
Financial Management Tax Credit
Receipts from fees received for performing management or investment advisory services for a related mutual fund, hedge fund or real estate investment trust may be deducted from gross receipts.
Locomotive Fuel Gross Receipts & Compensating Tax Exemption
Receipts from the sale of fuel to a common carrier to be loaded or used in a locomotive engine are exempted from the gross receipts and compensating taxes. “Locomotive engine” is defined as a wheeled vehicle consisting of a self-propelled engine that is used to draw trains along railway tracks.
Rural Software Development Gross Receipts Tax Deduction
A taxpayer whose primary business is providing software development services and who had no business location in New Mexico other than in a qualified area during the period for which a deduction under this section is sought. The company must have been established after 7/1/02. Software development services include custom software design and development and web site design and development, but does not include software implementation or support services.
Rural, for purposes of this tax deduction, is defined as statewide except for an incorporated municipality with a population of more than 50,000 (Albuquerque, Las Cruces, Rio Rancho and Santa Fe).