HOUSE BILL 169
52nd legislature - STATE OF NEW MEXICO - second session, 2016
INTRODUCED BY
Monica Youngblood and Mary Kay Papen
AN ACT
RELATING TO TAXATION; CREATING THE CAPITAL GAIN REINVESTMENT INCOME TAX CREDIT.
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] CAPITAL GAIN REINVESTMENT INCOME TAX CREDIT.--
A. A taxpayer who is not a dependent of another taxpayer may claim a nontransferable credit against the taxpayer's tax liability imposed by the Income Tax Act:
(1) if the taxpayer makes a qualified reinvestment:
(a) with income from a net capital gain acquired by the taxpayer in 2015 or thereafter; and
(b) no later than twenty-four months after the net capital gain;
(2) in whichever amount is less:
(a) the tax imposed by the Income Tax Act for the net capital gain and paid by the taxpayer; or
(b) the cost of the qualified reinvestment; and
(3) for the taxable year in which the taxpayer makes a qualified reinvestment.
B. The credit provided by this section may be referred to as the "capital gain reinvestment income tax credit". The purpose of the capital gain reinvestment income tax credit is to encourage the in-state sale and exchange of capital assets and to encourage investment in New Mexico businesses.
C. A taxpayer claiming the capital gain reinvestment income tax credit for an investment is ineligible for the angel investment credit that otherwise may be taken for that investment.
D. To receive the capital gain reinvestment income tax credit, a taxpayer shall:
(1) apply to the economic development department for a certificate of eligibility for the credit; and
(2) provide to the taxation and revenue department a certificate of eligibility issued by the economic development department and any other information the taxation and revenue department may require.
E. The economic development department shall review applications for certification for the capital gain reinvestment income tax credit and shall issue a certificate of eligibility to a taxpayer if the economic development department determines that the taxpayer has met the requirements of Paragraph (1) of Subsection A of this section. F. The taxation and revenue department shall approve a taxpayer's claim for the capital gain reinvestment income tax credit if the taxpayer has complied with the requirements of this section.
G. That portion of a capital gain reinvestment income tax credit that exceeds a taxpayer's tax liability in the taxable year in which the credit is claimed shall not be refunded but may be carried forward by the taxpayer for a maximum of five consecutive taxable years.
H. Married individuals filing separate returns for a taxable year for which they could have filed a joint return may each claim no more than one-half of the capital gain reinvestment income tax credit that could have been claimed on a joint return.
I. A taxpayer who owns an interest in a business entity that is taxed for federal income tax purposes as a partnership or a limited liability company may claim a capital gain reinvestment income tax credit in proportion to the taxpayer's ownership interest in that business entity if that business entity and one or more other business entities in which the taxpayer owns an interest or that business entity and the taxpayer have met the requirements to be eligible for the credit. The total credit claimed by all members of the business entity shall not exceed the amount allowed by Subsection A of this section.
J. Beginning in 2017 and every year thereafter that the capital gain reinvestment income tax credit is in effect, the taxation and revenue department shall compile an annual report that includes the number of taxpayers who took the credit, the aggregate amount of credits taken and any other information necessary to evaluate the effectiveness of the credit. The taxation and revenue department shall present the report to the revenue stabilization and tax policy committee and the legislative finance committee with an analysis of the effectiveness and cost of the credit and whether the credit is performing the purpose for which it was created.
K. As used in this section:
(1) "equity" means:
(a) common or preferred stock of a corporation;
(b) a partnership interest in a limited partnership; or
(c) a membership interest in a limited liability company, including debt subject to an option in favor of the creditor to convert the debt into common or preferred stock, a partnership interest or a membership interest;
(2) "net capital gain" means "net capital gain" as defined in Section 1222(11) of the Internal Revenue Code;
(3) "New Mexico business":
(a) means a corporation, general partnership, limited partnership, limited liability company or other similar entity that: 1) maintains its principal place of business in New Mexico; 2) employs a majority of its full-time employees, if any, in New Mexico; 3) has a majority of its tangible assets, if any, in New Mexico; 4) has one hundred or fewer employees calculated on a full-time-equivalent basis in the taxable year in which the qualified reinvestment was made; and 5) has not had gross revenues in excess of five million dollars ($5,000,000) in any fiscal year ending on or before the date the qualified reinvestment was made; but
(b) excludes: 1) a government or nonprofit organization designated as such by the federal government or any state; and 2) an entity all or substantially all of whose assets consist of interests in real property or whose business is primarily the sale, leasing or other disposition of real property; and
(4) "qualified reinvestment":
(a) means a cash, stock or in-kind investment made for equity in a New Mexico business; and
(b) includes a qualified reinvestment made through an entity treated as a partnership or disregarded entity for federal income tax purposes of which the taxpayer is a member, partner or other owner."
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