44TH LEGISLATURE - STATE OF NEW MEXICO - FIRST SESSION, 1999

RELATING TO TAXATION; PROVIDING A PERSONAL INCOME TAX AND CORPORATE INCOME TAX CREDIT FOR AGRICULTURAL WATER CONSERVATION EXPENSES.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF NEW MEXICO:

Section 1. A new section of the Income Tax Act is enacted to read:

"[NEW MATERIAL] TAX CREDIT--AGRICULTURAL WATER CONSERVATION EXPENSES.--

A. To encourage the conservation of water in agricultural activities, any taxpayer who presents evidence satisfactory to the secretary that he holds a water right in New Mexico, who files an individual New Mexico income tax return and who is not the dependent of another individual may claim a credit against his income tax liability equal to seventy-five percent of his incurred expenses, not to exceed a maximum credit of fifty thousand dollars ($50,000), for improvements in irrigation systems or water management methods that comply with a water conservation plan approved by the state engineer in the year in which the expenses are incurred.

B. To qualify for the credit pursuant to this section:

(1) the improvements in irrigation systems or water management methods must be primarily designed to substantially conserve water on land in this state that is owned by the taxpayer and used by the taxpayer or the taxpayer's tenant to:

(a) produce crops, fruits or other agricultural products;

(b) raise, harvest or grow trees; or

(c) sustain livestock;

(2) the expense for the improvements in irrigation systems or water management methods must be incurred after January 1, 2000 and must be consistent with an effective water conservation plan that the taxpayer has filed with the United States department of agriculture natural resources conservation service; and

(3) the land on which the improvements in irrigation systems or water management methods occur must be located in this state and be entirely in an area identified, in the taxable year or in any preceding taxable year, as an area of extreme drought severity on the Palmer drought severity index published by the national oceanic and atmospheric administration.

C. Co-owners of the land on which the improvements in irrigation systems or water management methods occur, including partners in a partnership and shareholders of an S corporation, as defined in Section 1361 of the Internal Revenue Code of 1986, as amended, may each claim only the pro rata share of the credit allowed under this section based on the ownership interest. The total of the credits allowed all the owners may not exceed the amount that would have been allowed a sole owner of the land.

D. A husband and wife who file separate returns for a taxable year in which they could have filed a joint return may each claim only one-half of the credit that would have been allowed on a joint return.

E. If the allowable tax credit in the year the credit becomes claimable exceeds the taxes otherwise due pursuant to the Income Tax Act on the taxpayer's income, or if there are no income taxes due from the taxpayer, the taxpayer may carry forward the amount of the credit not used in that year to offset taxes pursuant to the Income Tax Act for not more than five consecutive taxable years' income tax liability. This credit may only be deducted from the taxpayer's income tax liability.

F. This credit may not be claimed if any deduction for the expenses incurred for improvements in irrigation systems or water management methods is claimed pursuant to the Internal Revenue Code.

G. The soil and water conservation bureau of the forestry division of the energy, minerals and natural resources department shall promulgate rules to implement this section and establish guidelines to determine whether improvements in irrigation systems or water management methods qualify for the credit available under this section."

Section 2. A new section of the Corporate Income and Franchise Tax Act is enacted to read:

"[NEW MATERIAL] TAX CREDIT--AGRICULTURAL WATER CONSERVATION EXPENSES.--

A. To encourage the conservation of water in agricultural activities, any taxpayer that presents evidence satisfactory to the secretary that it holds a water right in New Mexico and that files a New Mexico corporate income tax return may claim a credit against its corporate income tax liability equal to seventy-five percent of its incurred expenses, not to exceed a maximum credit of fifty thousand dollars ($50,000), for improvements in irrigation systems or water management methods that comply with a water conservation plan approved by the state engineer, in the year in which expenses are incurred.

B. To qualify for the credit pursuant to this section:

(1) the improvements in irrigation systems or water management methods must be primarily designed to substantially conserve water on land that is owned by the taxpayer and used by the taxpayer or the taxpayer's tenant to:

(a) produce crops, fruits or other agricultural products;

(b) raise, harvest or grow trees; or

(c) sustain livestock;

(2) the expense for the improvements in irrigation systems or water management methods must be incurred after January 1, 2000 and must be consistent with an effective water conservation plan that the taxpayer has filed with the United States department of agriculture natural resources conservation service; and

(3) the land on which the improvements in irrigation systems or water management methods occur must be located in this state and be entirely in an area that has been identified, in the taxable year or in any preceding taxable year, as an area of extreme drought severity on the Palmer drought severity index published by the national oceanic and atmospheric administration.

C. Co-owners of the land on which the improvements in irrigation systems or water management methods occur, including corporate partners in a partnership, may each claim only the pro rata share of the credit allowed pursuant to this section based on the ownership interest. The total of the credits allowed all the owners may not exceed the amount that would have been allowed a sole owner of the land.

D. If the allowable tax credit in the year the credit becomes claimable exceeds the taxes otherwise due pursuant to the Corporate Income and Franchise Tax Act on the taxpayer's corporate income, or if there are not taxes due pursuant to the Corporate Income and Franchise Tax Act, the taxpayer may carry forward the amount of the credit not used to offset taxes pursuant to the Corporate Income and Franchise Tax Act for not more than five consecutive taxable years' corporate income tax liability.

E. The credit may not be claimed if any allowance for state tax purposes is taken by the taxpayer for a deduction for the expenses incurred for improvements in irrigation systems or water management methods pursuant to the Internal Revenue Code.

F. The soil and water conservation bureau of the forestry division of the energy, minerals and natural resources department shall promulgate rules to implement this section and establish guidelines to determine whether improvements in irrigation systems or water management methods that occur qualify for the credit available under this section."

Section 3. APPLICABILITY.--The provisions of this act apply to taxable years beginning on and after January 1, 2000.

Section 4. EFFECTIVE DATE.--The effective date of the provisions of this act is July 1, 2000.