HOUSE BILL 367
56th legislature - STATE OF NEW MEXICO - first session, 2023
Jason C. Harper and Benny Shendo, Jr. and Joshua N. Hernandez and John Block
RELATING TO TAXATION; REDUCING THE RATES OF THE GROSS RECEIPTS TAX AND THE COMPENSATING TAX; EXPANDING GROSS RECEIPTS TAX AND GOVERNMENTAL GROSS RECEIPTS TAX DEDUCTIONS FOR THE SALE OF PROFESSIONAL SERVICES.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF NEW MEXICO:
SECTION 1. Section 7-9-4 NMSA 1978 (being Laws 1966, Chapter 47, Section 4, as amended) is amended to read:
"7-9-4. IMPOSITION AND RATE OF TAX--DENOMINATION AS "GROSS RECEIPTS TAX".--
A. For the privilege of engaging in business, an excise tax equal to [the following percentages] four and five-eighths percent of gross receipts is imposed on any person engaging in business in New Mexico, [(1) prior to July 1, 2023, five percent; and
(2) beginning July 1, 2023, four and seven-eighths percent] except as provided in Subsection C of this section.
B. The tax imposed by this section shall be referred to as the "gross receipts tax".
C. If, for any single fiscal year occurring after fiscal year 2025 and prior to fiscal year 2030, gross receipts tax revenues are less than ninety-five percent of the gross receipts tax revenues for the previous fiscal year, as determined by the secretary of finance and administration, the rate of the gross receipts tax shall be [five and one-eighth] four and seven-eighths percent beginning on the July 1 following the determination made by the secretary of finance and administration.
D. On or before February 1 of each year, until the rate of the gross receipts tax is adjusted to [five and one- eighth] four and seven-eighths percent pursuant to Subsection C of this section, the secretary of finance and administration shall make a determination for the purposes of Subsection C of this section. If the rate of tax is adjusted pursuant to that subsection, the secretary shall certify to the secretary of taxation and revenue that the rate of the gross receipts tax shall be [five and one-eighth] four and seven-eighths percent, effective on the following July 1.
E. As used in this section, "gross receipts tax revenues" means the net receipts attributable to the gross receipts tax and distributed to the general fund."
SECTION 2. Section 7-9-7 NMSA 1978 (being Laws 1966, Chapter 47, Section 7, as amended) is amended to read:
"7-9-7. IMPOSITION AND RATE OF TAX--DENOMINATION AS "COMPENSATING TAX".--
A. For the privilege of making taxable use of tangible personal property in New Mexico, there is imposed on the person using the property an excise tax equal to [five percent prior to July 1, 2023 and four and seven-eighths] four and five-eighths percent [beginning July 1, 2023], except as provided in Subsection G of this section, of the value of tangible property that was:
(1) manufactured by the person using the property in the state; or
(2) acquired in a transaction for which the seller's receipts were not subject to the gross receipts tax.
B. For the purpose of Subsection A of this section, value of tangible personal property shall be the adjusted basis of the property for federal income tax purposes determined as of the time of acquisition or introduction into this state or of conversion of the property to taxable use, whichever is later. If no adjusted basis for federal income tax purposes is established for the property, a reasonable value of the property shall be used.
C. For the privilege of making taxable use of a license or franchise in New Mexico, there is imposed on the person using the license or franchise an excise tax equal to the rate provided in Subsection A or G of this section, as applicable, against the value of the license or franchise in its use in this state. The department by rule, ruling or instruction shall fairly apportion, where appropriate, the value of a license or franchise to its value in use in New Mexico. The tax shall apply only to the value of a license or franchise used in New Mexico where the license or franchise was acquired in a transaction the receipts from which were not subject to the gross receipts tax.
D. For the privilege of making taxable use of services in New Mexico, there is imposed on the person using the services an excise tax equal to the rate provided in Subsection A or G of this section, as applicable, against the value of the services at the time the services were performed or the product of the service was acquired. For use of services to be a taxable use pursuant to this subsection, the services shall have been acquired in a transaction the receipts from which were not subject to the gross receipts tax.
E. For purposes of this section, receipts are not subject to the gross receipts tax if the person responsible for the gross receipts tax on those receipts lacked nexus in New Mexico or the receipts were exempt or allowed to be deducted pursuant to the Gross Receipts and Compensating Tax Act.
F. The tax imposed by this section shall be referred to as the "compensating tax".
G. If the gross receipts tax is increased to [five and one-eighth] four and seven-eighths percent pursuant to Subsection C of Section 7-9-4 NMSA 1978, the rate of the compensating tax shall be [five and one-eighth] four and seven-eighths percent.
H. As used in this section, "taxable use" means use by a person who acquires tangible personal property, a license, a franchise or a service, and the use of which would not have qualified for an exemption or deduction pursuant to the Gross Receipts and Compensating Tax Act."
SECTION 3. Section 7-9-46.1 NMSA 1978 (being Laws 2022, Chapter 47, Section 14) is amended to read:
"7-9-46.1. DEDUCTION--GROSS RECEIPTS--GOVERNMENTAL GROSS RECEIPTS--SALES OF PROFESSIONAL SERVICES [TO MANUFACTURERS].--
A. Receipts from selling professional services may be deducted from gross receipts or from governmental gross receipts if:
(1) the sale is made to a [person engaged in the business of manufacturing who delivers] sole proprietorship, a limited liability company, a partnership or a corporation;
(2) the sale is made to a taxpayer registered with the department for payment of the gross receipts tax or with an equivalent tax program in another state, or is registered as a business in another state; or
(3) the purchaser presents a nontaxable transaction certificate to the seller or provides alternative evidence pursuant to Section 7-9-43 NMSA 1978. [The professional services shall be related to the product that the buyer is in the business of manufacturing.
B. The purpose of the deductions provided in this section is to encourage manufacturing businesses to locate in New Mexico and to reduce the tax burden, including reducing pyramiding, on the professional services that are purchased by manufacturing businesses in New Mexico.
C.] B. A taxpayer allowed a deduction pursuant to this section shall report the amount of the deduction separately in a manner required by the department.
[D.] C. The department shall compile an annual report on the deduction provided by this section that shall include the number of taxpayers that claimed the deduction, the aggregate amount of deductions claimed and any other information necessary to evaluate the effectiveness of the deduction. The department shall compile and present the report to the revenue stabilization and tax policy committee and the legislative finance committee with an analysis of the cost of the deduction and whether the deduction is performing the purpose for which it was created.
[E.] D. As used in this section:
(1) "accounting services" means the systematic and comprehensive recording of financial transactions pertaining to a business entity and the process of summarizing, analyzing and reporting these transactions to oversight agencies or tax collection entities, including certified public auditing, attest services and preparing financial statements, bookkeeping, tax return preparation, advice and consulting and, where applicable, representing taxpayers before tax collection agencies. "Accounting services" does not include, except as provided with respect to financial management services, investment advice, wealth management advice or consulting or any tax return preparation, advice, counseling or representation for individuals, regardless of whether those individuals are owners of pass-through entities, such as partnerships, limited liability companies or S corporations;
(2) "architectural services" means services related to the art and science of designing and building structures for human habitation or use and includes planning, providing preliminary studies, designs, specifications and working drawings and providing for general administration of construction contracts;
(3) "engineering services" means consultation, the production of a creative work, investigation, evaluation, planning and design, the performance of studies and reviewing planning documents when performed by, or under the supervision of, a licensed engineer, including the design, development and testing of mechanical, electrical, hydraulic, chemical, pneumatic or thermal machinery or equipment, industrial or commercial work systems or processes and military equipment. "Engineering services" does not include medical or medical laboratory services, any engineering performed in connection with a construction service or the design and installation of computer or computer network infrastructure;
(4) "information technology services" means separately stated services for installing and maintaining a business's computers and computer network, including performing computer network design; installing, repairing, maintaining or restoring computer networks, hardware or software; and performing custom software programming or making custom modifications to existing software programming. "Information technology services" does not include:
(a) agreements for software maintenance and [update agreements] updates, unless made in conjunction with custom programming;
(b) services performed on or for computers, servers, chilling equipment and pre-programmed software; or
(c) data processing services or the processing or storage of information to compile and produce records of transactions for retrieval or use, including data entry, data retrieval, data searches and information compilation [or
(d) access to telecommunications or internet];
(5) "legal services" means services performed by a licensed attorney or under the supervision of a licensed attorney for a client, regardless of the attorney's form of business entity or whether the services are prepaid, including legal representation before courts or administrative agencies; drafting legal documents, such as contracts or patent applications; legal research; advising and counseling; arbitration; mediation; and notary public and other ancillary legal services performed for a client in conjunction with and under the supervision of a licensed attorney. "Legal services" does not include lobbying or government relations services, title insurance agent services, licensing or selling legal software or legal document templates, insurance investigation services or any legal representation involving financial crimes or tax evasion in New Mexico; [and]
(6) "payroll services" means managing and administering employee payroll, benefits and compensation, including employee withholding; and
[(6)] (7) "professional services" means accounting services, architectural services, engineering services, information technology services, [and] legal services and payroll services."
SECTION 4. EFFECTIVE DATE.--The effective date of the provisions of this act is July 1, 2023.
- 10 -