HOUSE BILL 75

46th legislature - STATE OF NEW MEXICO - second session, 2004

INTRODUCED BY

John A. Heaton

FOR THE ECONOMIC AND RURAL DEVELOPMENT AND TELECOMMUNICATIONS COMMITTEE

AN ACT

RELATING TO TAXATION; ENACTING NEW SECTIONS OF THE GROSS RECEIPTS AND COMPENSATING TAX ACT; PROVIDING FOR A RESEARCH AND DEVELOPMENT SMALL BUSINESS TAX DEDUCTION.

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

     Section 1. A new section of the Gross Receipts and Compensating Tax Act is enacted to read:

     "[NEW MATERIAL] DEDUCTION--GROSS RECEIPTS--RESEARCH AND DEVELOPMENT SMALL BUSINESSES.--

          A. Receipts of a qualified research and development small business may be deducted from gross receipts. The deduction provided by this section may be claimed only for a period ending thirty-five consecutive calendar months after the first calendar month for which the deduction is claimed by the taxpayer or by a person to whom the taxpayer is a successor pursuant to Section 7-1-61 NMSA 1978.

          B. As used in this section:

                (1) "qualified research and development small business" means a business, including a corporation, general partnership, limited partnership, limited liability company, sole proprietorship or other similar entity, that:

                     (a) employed no more than twenty-five employees on a full-time-equivalent basis in any prior calendar month;

                     (b) had total revenues of no more than ten million dollars ($10,000,000) in any prior fiscal year;

                     (c) did not in any prior calendar month have more than fifty percent of its voting securities or other equity interest with the right to designate or elect the board of directors or other governing body of the qualified business owned directly or indirectly by another business; and

                     (d) has made qualified research expenditures for the period of twelve calendar months ending with the month for which the deduction is sought of at least twenty percent of its total revenues for those twelve calendar months;

                (2) "qualified research expenditure" means an expenditure in connection with qualified research, but does not include any expenditure on research funded by any grant, contract or similar mechanism by another person or governmental entity, and does not include any expenditure on property that is owned by a municipality or county in connection with an industrial revenue bond project or property for which the taxpayer has received any credit pursuant to the Capital Equipment Tax Credit Act, the Investment Credit Act or the Technology Jobs Tax Credit Act; and

                (3) "qualified research" means research:

                     (a) that is undertaken for the purpose of discovering information that is technological in nature and the application of which is intended to be useful in the development of a new or improved business component of the taxpayer; and

                     (b) in which substantially all activities constitute elements of a process of experimentation related to new or improved function, performance, reliability or quality, but not related to style, taste, cosmetic or seasonal design factors."

     Section 2. A new section of the Gross Receipts and Compensating Tax Act is enacted to read:

     "[NEW MATERIAL] DEDUCTION--COMPENSATING TAX--RESEARCH AND DEVELOPMENT SMALL BUSINESSES.--

          A. A qualified research and development small business may deduct the value of tangible personal property in computing the compensating tax due if the property is used in connection with a qualified research expenditure. The deduction provided by this section may be claimed only for a period ending thirty-five consecutive calendar months after the first calendar month for which the deduction is claimed.

          B. As used in this section:

                (1) "qualified research and development small business" means a business, including a corporation, general partnership, limited partnership, limited liability company, sole proprietorship or other similar entity, that:

                     (a) employed no more than twenty-five employees on a full-time-equivalent basis in any prior calendar month;

                     (b) had total revenues of no more than ten million dollars ($10,000,000) in any prior fiscal year;

                     (c) did not in any prior calendar month have more than fifty percent of its voting securities or other equity interest with the right to designate or elect the board of directors or other governing body of the qualified business owned directly or indirectly by another business; and

                     (d) has made qualified research expenditures for the period of twelve calendar months ending with the month for which the deduction is sought of at least twenty percent of its total revenues for those twelve calendar months;

                (2) "qualified research expenditure" means an expenditure in connection with qualified research, but does not include any expenditure on research funded by any grant, contract or similar mechanism by another person or governmental entity, and does not include any expenditure on property that is owned by a municipality or county in connection with an industrial revenue bond project or property for which the taxpayer has received any credit pursuant to the Capital Equipment Tax Credit Act, the Investment Credit Act or the Technology Jobs Tax Credit Act; and

                (3) "qualified research" means research:

                     (a) that is undertaken for the purpose of discovering information that is technological in nature and the application of which is intended to be useful in the development of a new or improved business component of the taxpayer; and

                     (b) in which substantially all activities constitute elements of a process of experimentation related to new or improved function, performance, reliability or quality, but not related to style, taste, cosmetic or seasonal design factors."

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