46th legislature - STATE OF NEW MEXICO - first session, 2003

RELATING TO TAXATION; AMENDING THE INCOME TAX ACT TO PROVIDE A DEDUCTION FOR NET CAPITAL GAIN INCOME FROM THE SALE OF A CLOSELY HELD BUSINESS.

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

Section 1. Section 7-2-34 NMSA 1978 (being Laws 1999, Chapter 205, Section 1) is amended to read:

"7-2-34. DEDUCTION--NET CAPITAL GAIN INCOME.--

A. Except as provided in Subsection [B] C of this section, a taxpayer may claim a deduction from net income in an amount equal to the greater of:

(1) the taxpayer's net capital gain income for the taxable year for which the deduction is being claimed, but not to exceed one thousand dollars ($1,000); or

(2) the taxpayer's net capital gain income attributable to the sale of a closely held business if the income is included in net income and allocated or apportioned to New Mexico.

B. 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 deduction provided by this section that would have been allowed on the joint return.

[B.] C. A taxpayer may not claim the deduction provided in Subsection A of this section if the taxpayer has claimed the credit provided in Section 7-2D-8.1 NMSA 1978.

[C.] D. As used in this section:

(1) "closely held business" means a trade or business:

(a) operated as a sole proprietorship; or

(b) operated by a corporation, partnership, limited partnership, limited liability company or other legal entity, the equity interests of which are controlled by seventy-five or fewer qualifying owners;

(2) "equity interest" means the equity of a legal entity, including the capital stock of a corporation, the interest of a general or limited partner in a partnership or the interest of a member of a limited liability company;

(3) "net capital gain" means "net capital gain" as defined in Section 1222 (11) of the Internal Revenue Code; and

(4) "sale of a closely held business" means the sale or exchange of:

(a) substantially all of the assets of a closely held business; or

(b) a taxpayer's entire equity interest in a closely held business in a transaction in which substantially all of the equity interests of the closely held business are sold or exchanged."

Section 2. APPLICABILITY.--The provisions of this act apply to taxable years beginning on or after January 1, 2003.