Certain New Mexico Organizations Can Save on Gross Receipts Tax, Courtesy of House Bill 245

  |   March 16, 2018

New Mexico Governor Susana Martinez signed House Bill 245 on March 3, 2018, effective immediately. The main purpose behind this bill is to resolve the uncertainties that contractors have faced regarding cost segregation studies on construction for governmental entities, nonprofits, and industrial revenue bond projects.

For years, governments and nonprofits have used cost segregation studies to identify tangible personal property in construction projects. Receipts from selling tangible personal property could be deducted from New Mexico gross receipts tax under a long-standing New Mexico tax regulation. In 2014, the New Mexico Taxation and Revenue Department changed its stance on cost segregation studies and stopped allowing these deductions.

House Bill 245 clarifies construction materials that are not eligible, and once again allows the deduction for segregated tangible personal property. Under the new legislation, construction material does not include “tangible personal property, whether removable or non-removable, that is sold or will be subsequently sold to a 501(c)(3) organization or to the United States, New Mexico or a governmental unit or subdivision, agency, department or instrumentality of the United States or of New Mexico and is or would be classified for depreciation purposes as three-year property, five-year property, seven-year property or ten-year property, including indirect costs related to the asset basis” per IRS Code.

Under the revised New Mexico Statutes 7-9-54 and 7-9-60, government entities, nonprofits, and industrial revenue bond projects can once again attain gross receipts tax savings from cost segregation studies. If you want more information on how this change in law may affect your business, please contact James Ortiz.

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