HOUSE COMMERCE AND ECONOMIC DEVELOPMENT
COMMITTEE SUBSTITUTE FOR
HOUSE BILL 129
55th legislature - STATE OF NEW MEXICO - second session, 2022
AN ACT
RELATING TO TAXATION; REQUIRING THE BUSINESS INCOME OF MOST CORPORATIONS TO BE APPORTIONED TO THIS STATE BY THE SALES FACTOR; REQUIRING QUALIFYING ENTITIES TO APPORTION BUSINESS INCOME USING THE THREE-FACTOR FORMULA; ALLOWING QUALIFYING ENTITIES AN ELECTION TO APPORTION BUSINESS INCOME BY THE SALES FACTOR, BUT REQUIRING THE ELECTION TO BE PERMANENT ONCE IT IS MADE.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF NEW MEXICO:
SECTION 1. Section 7-4-10 NMSA 1978 (being Laws 1993, Chapter 153, Section 1, as amended) is amended to read:
"7-4-10. APPORTIONMENT OF BUSINESS INCOME.--
A. Except as provided in [Subsections B and C] Subsection B of this section, all business income shall be apportioned to this state by multiplying the income by the sales factor.
B. Except as provided in Subsection C of this section, the business income of a qualifying entity shall be apportioned by multiplying the income by a fraction, the numerator of which is the property factor plus the payroll factor plus the sales factor and the denominator of which is three.
[B. If eighty percent or more of the New Mexico numerators of the property and payroll factors for a filing group, or for a taxpayer that is not a member of a filing group, are employed in manufacturing or operating a computer processing facility, the filing group or the taxpayer may elect to have business income apportioned to this state by multiplying the income by the sales factor for the taxable year.]
C. [If a filing group, or a taxpayer that is not a member of a filing group, has a headquarters operation in New Mexico, the filing group or the taxpayer may elect to have business income apportioned to this state by multiplying the income by the sales factor; for the taxable year] A qualifying entity may elect to have business income apportioned by multiplying the income by the sales factor; provided that, once the election is made, the qualifying entity shall apportion business income in that manner for each taxable year thereafter.
D. To elect the method of apportionment provided by Subsection [B or] C of this section, [the taxpayer] a qualifying entity shall notify the department of the election, in writing, no later than the date on which the [taxpayer] qualifying entity files the return for the first taxable year to which the election will apply. [The election shall apply as follows:
(1) if the election is made for taxable years beginning prior to January 1, 2020, to the taxable year in which the election is made and to each taxable year thereafter for three years, or until the taxable year ending prior to January 1, 2020, whichever is earlier;
(2) if the election is made for a taxable year beginning on or after January 1, 2020, to the taxable year in which the election is made and to each taxable year thereafter until the taxpayer notifies the department, in writing, that the election is terminated, except that the taxpayer shall not terminate the election until the method of apportioning business income provided by Subsection B or C of this section has been used by the taxpayer for at least three consecutive taxable years, including a total of at least thirty-six calendar months; and
(3) if the election is made by a qualifying filing group, the election shall apply to the members of the filing group properly included pursuant to Section 7-2A-8.3 NMSA 1978.]
E. For purposes of this section:
(1) "filing group" means "filing group" as that term is defined in the Corporate Income and Franchise Tax Act; and
[(2) "headquarters operation" means:
(a) the center of operations of a business: 1) where corporate staff employees are physically employed; 2) where the centralized functions are primarily performed, including administrative, planning, managerial, human resources, purchasing, information technology and accounting, but not including operating a call center; 3) the function and purpose of which is to manage and direct most aspects and functions of the business operations within a subdivided area of the United States; 4) from which final authority over regional or subregional offices, operating facilities and any other offices of the business are issued; and 5) including national and regional headquarters if the national headquarters is subordinate only to the ownership of the business or its representatives and the regional headquarters is subordinate to the national headquarters; or
(b) the center of operations of a business: 1) the function and purpose of which is to manage and direct most aspects of one or more centralized functions; and 2) from which final authority over one or more centralized functions is issued;
(3) "manufacturing" means combining or processing components or materials to increase their value for sale in the ordinary course of business, but does not include:
(a) construction;
(b) farming;
(c) power generation; provided that for taxable years beginning prior to January 1, 2024, "manufacturing" includes electricity generation at a facility that does not require location approval and a certificate of convenience and necessity prior to commencing construction or operation of the facility pursuant to the Public Utility Act;
(d) processing natural resources, including hydrocarbons; or
(e) processing or preparation of meals for immediate consumption; and
(4) "operating a computer processing facility" means managing the necessary and ancillary activities for the operation of a facility primarily used to process data or information, but does not include managing the operation of facilities that are predominantly used to support sales of tangible property or the provision of banking, financial or professional services]
(2) "qualifying entity" means the presence of a business unit of a corporation or a group of corporations in a combined filing group:
(a) with one hundred or more employees for whom wages are withheld pursuant to the Withholding Tax Act. The employee measurement date is the first day of the taxable year immediately prior to the taxable year for which the election is made, and shall be certified by audit; and
(b) with a cumulative investment in property in New Mexico exceeding fifty million dollars ($50,000,000). Property owned by the qualifying entity shall be valued at the property's original cost, which shall be deemed to be the basis of the property for federal income tax purposes, prior to any federal adjustments, at the time of acquisition by the qualifying entity and adjusted by subsequent capital additions or improvements thereto and partial disposition thereof, by reason of sale, exchange or abandonment. For purposes of this subparagraph, "cumulative investment in property in New Mexico" means the average value of the taxpayer's real and tangible personal property owned or rented and used in New Mexico during the tax period."
SECTION 2. APPLICABILITY.--The provisions of this act apply to taxable years beginning on or after January 1, 2023.
SECTION 3. EFFECTIVE DATE.--The effective date of the provisions of this act is January 1, 2024.
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