On April 4, New Mexico Governor Michelle Lujan Grisham signed House Bill 6 into law, initiating complex changes to New Mexico tax laws over a seven-year period, some of which are effective immediately and others that will be phased in thru July 2026.
The new laws include changes to the personal income tax, corporate income tax, gross receipts tax (GRT), and several excise taxes. Below are some key provisions of the bill that affect New Mexico’s taxpayers.
Personal Income Tax
- Amends the personal income tax bracket.Â
New Mexico has made changes to the personal income tax brackets, increasing the top tier tax rate to 5.9%. The top rate is imposed on single filers and estates with taxable income greater than $210,000, married filing jointly and head-of-household filers with taxable income over $315,000, and on married individual filing separately with taxable income over $157,500.
Effective date: Taxable years beginning on or after January 1, 2021Â
- Reduces capital gains deduction.
New Mexico will reduce the deduction for net capital gain income to 40% from 50%.
Effective date: Taxable years beginning on or after January 1, 2019
- Creates an income tax dependent deduction.
New Mexico has passed an additional dependent deduction designed to offset impacts on families from the Tax Cuts and Jobs Act. New Mexico will now have an additional deduction of $4,000 for every dependent beyond the first dependent claimed by a taxpayer.
Effective date: Taxable years beginning on or after January 1, 2019
- Increases the working families tax credit.
New Mexico taxpayers filing income tax returns will see an increase in the working families tax credit from 10% to 17% of the federal income tax credit. The credit may be deducted from the income tax liability and any excess shall be refunded to the taxpayer.
Effective Date: Taxable years beginning on or after January 1, 2019
Corporate Income Tax
- Implements mandatory combined filing.
In an effort to prevent losses of tax revenue from income-shifting, New Mexico will follow more than half the states across the nation and require combined filing for unitary business groups. Unitary groups will file a return reporting and paying tax on the taxable income as a worldwide combined group, unless they properly elect to report and pay tax on taxable income as a water’s-edge or consolidated group.
Effective Date: Taxable years starting on or after January 1, 2020
- Creates income tax deduction to offset material financial effects of changes in deferred tax amounts.
A filing group subject to the corporate income tax whose members are part of a publicly traded company may claim a deduction not exceeding one-tenth of the amount of the aggregate increase in net deferred tax liabilities, the aggregate decrease in net deferred tax assets, or an aggregate change from a net deferred tax asset to a net deferred tax liability measured under GAAP. If the deduction is greater than the taxpayer’s net income, any excess amount may be carried forward and applied as a deduction to the taxpayer’s net income in future income tax years until fully utilized.
Effective Date: Taxable year beginning on or after January 1, 2026
Gross Receipts Tax (GRT)
- Compensating tax rate for services and tangibles made equal.
New Mexico’s compensating tax rate for services will increase from 5% to 5.125%. This makes the compensating tax rate for services equal to the compensating tax rate for tangible personal property.
Effective Date: July 1, 2021
- Economic nexus law enacted.
New Mexico has followed several states across the nation by implementing an economic nexus law for gross receipts and compensating tax. The new law has expanded the imposition of gross receipts tax to include taxpayers:
Having, in the previous calendar year, total taxable gross receipts from sales; leases and licenses of tangible personal property; sales of licenses and sales of services and licenses for use of real property sourced to this state; of at least one hundred thousand dollars ($100,000).
Effective Date: July 1, 2019
- Marketplace providers responsible for collecting gross receipts.
New Mexico marketplace providers will be responsible for collecting and remitting gross receipts tax on the receipts from their marketplace sellers. Marketplace providers will have to include the gross receipts of their marketplace sellers from the sales of tangible personal property, leases and licenses of tangible personal property, sales of licenses and sales of services, or licenses for use of real property. Marketplace sellers will still have to report and deduct their receipts from the marketplace providor. Additionally, New Mexico has provided the marketplace seller with audit protection and finds the marketplace provider responsible for gross receipts from transactions they facilitated.
Effective Date: July 1, 2019
- Sourcing rules shift from place of business to destination-based sourcing.
The gross receipts tax for tangible personal property will move to destination-based sourcing, meaning the gross receipts tax rate will be determined by the location to which the tangible personal property is delivered. This represents a significant change to the structure of the GRT and will require much preparation by the Taxation and Revenue Department and businesses who are required to report and pay GRT.
This will not impact the taxation of professional services, whose GRT rate is determined based on the seller’s place of business. Additionally, taxpayers engaged in construction and selling of real estate will continue to report according to place of business, which for construction is the location of the construction project and for selling real estate is the location of the real property.
Effective Date: July 1, 2021
- Taxation of for-profit, nonprofit, and government hospitals.
New Mexico is now subjecting all hospitals (for-profit and nonprofit) to gross receipts tax. Nonprofit hospitals will now be exempted from the local option portion of gross receipts tax. The gross receipts tax deduction for hospitals will increase from 50% to 60%. The hospital gross receipts tax credit has been repealed and all hospitals are no longer able to claim a credit against their taxable gross receipts.
Effective Date: July 1, 2019
REDW will continue to monitor the complex details of the approved bill, and will publish future articles on how the changes will affect businesses and consumers. Subscribe to our blog to ensure that you receive these timely communications. Please contact James Ortiz, REDW’s State and Local Tax Senior Manager, to discuss any of the information in this article.
