An omnibus tax bill, HB 252 (ch. 67), signed into law by New Mexico's Governor Michelle Lujan Grisham on March 6, includes changes to corporate and individual income taxes, as well as gross receipts and compensating taxes. It also creates new and enhances certain existing tax credits. The following is a summary of those changes.

Corporate income changes

The law replaces the two-bracket corporate income tax rate system with a flat 5.9% income tax rate, effective January 1, 2025. The two-bracket system, which remains in effect through 2024, applies a 4.8% rate to taxable income of $500,000 or less, and a 5.9% rate to income over $500,000.

Effective for tax years beginning on or after January 1, 2025, the law eliminates the current subtraction of 100% of subpart F income (as defined in IRC Section 952) included in a corporation's federal taxable income. Also, effective as of January 1, 2025, the exclusion from the "water's-edge group" for entities with substantive presence outside the United States will be limited to foreign corporations. Currently, the water's-edge group does not include corporations wherever organized or incorporated that have less than 20% of their property, payroll and sales sourced to locations within the United States. Starting in 2025, the exclusion applies to corporations organized or incorporated outside the United States or its possession or territories.

The law continues to allow taxpayers engaged in power generation to make an election to apportion business income using the single sales factor. The election had been set to sunset for tax years beginning before January 1, 2024. This change applies to tax years beginning on or after January 1, 2024.

Tax credits and incentives

The law creates a new corporate and individual income tax credit for advanced energy equipment. Taxpayers who make qualifying expenditures for a New Mexico located qualified manufacturing facility may claim this credit for tax years beginning on or after January 1, 2025, and before January 1, 2033. The amount of this credit is the lesser of 20% of the amount of the qualified expenditures or $25 million. Taxpayers must apply for preliminary certification of eligibility from the Energy, Minerals and Natural Resources Department before they incur qualified expenditures and only one certificate of eligibility will be issued for all activities at a qualified manufacturing facility. Taxpayers meeting the credit requirements will receive a dated certificate of eligibility specifying the credit amount and the years in which it may be claimed. Taxpayers may sell, exchange, or transfer their certificate of eligibility to another taxpayer in increments of not less than $1 million. If, however, the amount of the certificate is less than $1 million, the entire credit may be transferred. Taxpayers may carry forward credit amounts exceeding their liability for up to five consecutive years.

Additionally, the law establishes a new corporate and individual income tax credit for geothermal electricity generation, effective for tax years beginning on or after January 1, 2025, and before January 1, 2032. Taxpayers holding an interest in a geothermal electricity generation facility may apply for, and if allowed, claim this credit in the amount of $0.015 per kilowatt-hour of electricity generated in New Mexico by the facility. The amount of aggregate credit available annually is $5 million. Taxpayers may carry forward credit amounts exceeding their liability for up to three consecutive years.

The law creates new clean car and clean car charging unit corporate and individual income tax credits. Applicable January 1, 2024, and before January 1, 2030, the credits are available for purchases or leases (for a minimum of three years) of electric vehicles (EV), plug-in hybrid EVs or fuel cell vehicles, and for purchases and installations of an EV charging unit or fuel cell charging unit in New Mexico. For years 2024—2026, the amount of the clean car tax credit ranges from $2,000 to $3,000, depending on the type of vehicle purchased and whether the vehicle is new or used. The amount of the tax credit is reduced in each of 2027, 2028 and 2029. The amount of the clean car charging unit credit for a direct current fast charger or fuel cell charging unit is the lesser of $25,000 or the cost to purchase and install the unit. For all other EV charging units, the amount of the credit is the lesser of $400 or the cost to purchase and install the unit. A taxpayer can be certified for only one clean car credit and one clean car charging unit credit per year. The certificate of eligibility for the clean car credit can be sold, exchanged, or otherwise transferred to another taxpayer for the credit's full value. Clean car and clean car charging unit credits that exceed a taxpayer's liability are refundable. Taxpayers who claimed a 2021 sustainable building tax credit for expenses of purchasing or installing an EV or fuel cell charging unit cannot claim the clean car charging unit credit.

The law also restores the corporate and individual income tax credits for applicable geothermal ground-coupled heat pump purchases and installations made on and after January 1, 2024, but before December 31, 2034. The refundable credit is equal to 30% of the purchase price of the qualifying system and is capped at $9,000 per taxpayer and $4 million in aggregate credits annually. To be eligible for the credit, the geothermal ground-coupled heat pump must be installed by a nationally accredited ground source heat pump installer. A credit will not be certified for taxpayers who claimed a 2021 sustainable building tax credit that included a geothermal ground-coupled heat pump as a component of qualification for that credit.

The law also increased the aggregate amount of the new solar market development income tax credit to $30 million for calendar year 2024 and thereafter. For each of calendar years 2020 through 2023, the credit has an aggregate limit of $12 million, with the potential for an additional $20 million in credits to be certified, but taxpayers may only claim the credit for tax year 2023.

Lastly, the law extends the period to make a qualified investment eligible for the angel investment credit to December 31, 2030 (from December 31, 2025).

Gross receipts and compensating tax

The law expands the gross receipts tax deduction for the sale of wind and solar equipment to a government to include sales of energy storage equipment for periods before July 1, 2034. Taxpayers may deduct from gross receipts, receipts from selling (1) wind or solar generation equipment or (2) energy storage equipment or related equipment, to a government for the purpose of installing a wind or solar electric generation facility or an energy storage facility, respectively.

Beginning January 1, 2025 and before July 1, 2032, receipts from the following may be deducted from gross receipts in computing compensating tax due: (1) selling tangible personal property (TPP) installed as part of, or services rendered in connection with, constructing and equipping a geothermal electricity generation facility; (2) selling TPP installed as part of a system used for the distribution of electricity generated from a geothermal electricity generation facility; and (3) selling or leasing TPP or selling services that are construction of plant costs. The deduction is available for sales made to a person holding an interest in a geothermal electricity generation facility and the person gives the seller/lessor an appropriate nontaxable transaction certificate or provides alternative evidence.

The law also provides a credit against the gross receipts tax for sales of dyed special fuel used for agricultural purposes. Effective July 1, 2024, and before July 1, 2029, taxpayers making such sales can claim a tax credit against gross receipts taxes due, if certain conditions are met. The amount of credit that exceeds the taxpayer's gross receipts tax liability may be carried forward for 36 consecutive tax periods but is not refundable.

Individual income tax

The law modifies the individual income tax brackets and rates, with the number of brackets increased to six (from five). Starting with tax years beginning on or after January 1, 2025, the following rates apply:

The law also modifies the limit on the net capital gain income deduction to the greater of (1) the taxpayer's net capital gain income for the tax year the deduction is being claimed not to exceed $2,500 (from $1,000) or (2) 40% of up to $1 million of the taxpayer's net capital gain income from the sale of a business that is allocated or apportioned to New Mexico for the tax year the deduction is being claimed (new material italicized). This change takes effect January 1, 2025.

Other individual income tax provisions in HB 252 that have limited applicability are not discussed in this summary.

Implications

New Mexico taxpayers should review these changes and their effective dates, especially the corporate income tax changes.

While most of the changes in HB 252 were enacted, the governor used her line-item veto authority to veto amendments to the Oil and Gas Severance Tax Act and the Natural Gas and Crude Oil Production Incentive Act that would have added an exemption to severance taxes for certain stripper well properties. In her veto message, the governor urged the provisions' sponsors to work with her administration to limit the exemption to small and independent operators.

Further, an earlier version of HB 252 included provisions that would have adopted a single sales factor apportionment formula. This provision was not included in the final bill. It could, however, be considered again in future legislative sessions.