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.

Definitions

• 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
  1. employs no more than 25 employees in any prior calendar month;
  2. had total revenues of no more than $5 million dollars in any prior fiscal year;
  3. did not in any prior calendar month have more than 50 percent 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; and
  4. 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 percent of its total expenditures for those 12 months.


• Qualified research expenditure means an expenditure directly related to qualified research, but does not include any expenditure on research funded by any grant, contract or similar mechanism by another person or governmental entity, and does not include any expenditure on property that is owned by a municipality or county in connection with an industrial revenue bond project or expenditures for which the taxpayer has received any other applicable credit.

1. Expenditures: Includes a wide range of un-reimbursed expenses such as payroll, consultants and contractors performing work in New Mexico, software, equipment, technical manuals, rent, operating expenses of facilities (but excludes expenditures on buildings owned by a government pursuant to an IRB or already owned by the taxpayer or an affiliate before 2/2/2000).
2. 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).
3. 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.

1. Basic credit: the taxpayer claims the credit within 1 year following the end of the year in which the expenditure was made. The claim is made by filing a form for approval with the Tax and Revenue Department. The amount approved is applied against the taxpayer’s state gross receipts, compensating and withholding liabilities until the credit is exhausted.
2. 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 (=$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 taxpayer applies for approval of the credit by filing the appropriate form with the tax department; approved credit amounts may be applied against the taxpayer’s income or corporate income tax liability; it is not refundable so any excess of credit over liability is carried forward.