SENATE CORPORATIONS AND TRANSPORTATION COMMITTEE SUBSTITUTE FOR

SENATE BILL 150

47th legislature - STATE OF NEW MEXICO - first session, 2005

AN ACT

RELATING TO TAXATION; PROVIDING FOR AN INCOME TAX CREDIT FOR INVESTMENT IN CERTAIN QUALIFIED BUSINESSES.

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

     Section 1. A new section of the Income Tax Act is enacted to read:

     "[NEW MATERIAL] ANGEL INVESTMENT CREDIT.--

          A. To encourage investment in qualified businesses, any taxpayer who files an individual New Mexico income tax return, who is not a dependent of another taxpayer and who makes a qualified investment may claim a credit in an amount not to exceed twenty-five percent of not more than one hundred thousand dollars ($100,000) of the qualified investment. The tax credit shall be known as the "angel investment credit".

          B. A taxpayer may claim the angel investment credit for not more than three qualified investments for each taxable year in which the taxpayer makes a qualified investment; provided that each investment is in a different qualified business. A taxpayer may claim the angel investment credit for a qualified investment made in the same qualified business or successor of that business for not more than three years.

          C. A taxpayer may claim the angel investment credit no later than one year following the end of the calendar year in which the qualified investment was made provided that a claim for the credit may not be made or allowed with respect to any investment made after December 31, 2009. A claim for the angel investment credit shall not exceed twenty-five thousand dollars ($25,000) for each qualified investment made by the taxpayer.

          D. A husband and wife who file separate returns for a taxable year in which they could have filed a joint return may each claim one-half of the credit that would have been allowed on a joint return.

          E. A taxpayer who otherwise qualifies for and claims the angel investment credit on a qualified investment made by a partnership of which the taxpayer is a member may claim a credit only in proportion to the taxpayer's interest in the partnership. The total credit claimed by all members of the partnership shall not exceed twenty-five thousand dollars ($25,000) for each qualified investment made by the partnership.

          F. The angel investment credit may only be deducted from the taxpayer's income tax liability. Any portion of the tax credit provided by this section that remains unused at the end of the taxpayer's taxable year may be carried forward for three consecutive years; provided that the total tax credits claimed under this section shall not exceed twenty-five thousand dollars ($25,000) for each qualified investment made by the taxpayer.

          G. As used in this section:

                (1) "business" means a corporation, general partnership, limited partnership, limited liability company, sole proprietorship or other similar entity but excludes an entity that is a government or a nonprofit organization designated as such by the federal government or any state;

                (2) "equity" means common or preferred stock of a corporation, a partnership interest in a limited partnership or a membership interest in a limited liability company; provided that the stock or interest is not subject to an option for conversion to debt;

                (3) "high-technology 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) substantially all of the activities of which constitute elements of a process or experimentation related to a new or improved function, performance, reliability or quality, but not related to style, taste or cosmetic or seasonal design factors;

                (4) "manufacturing" means combining or processing components or materials to increase their value for sale in the ordinary course of business, but not including:

                     (a) construction;

                     (b) farming;

                     (c) power generation;

                     (d) processing natural resources, including hydrocarbons; or

                     (e) preparing meals for immediate consumption, on or off premises;

                (5) "qualified business" means a business that:

                     (a) maintains its principal place of business in New Mexico;

                     (b) engages in high-technology research or manufacturing activities in New Mexico;

                     (c) has gross revenues of not more than five million dollars ($5,000,000) during the previous fiscal year;

                     (d) is not a business entity that directly or indirectly through one or more intermediaries controls, is controlled by or is under common control with another business entity; and

                (e) is not primarily engaged in or is not primarily organized as any of the following types of businesses: credit or finance services, including banks, savings and loan associations, credit unions, small loan companies or title loan companies; financial brokering or investment; professional services, including accounting, legal services, engineering and any other service the practice of which requires a license; insurance; real estate; construction or construction contracting; consulting or brokering; mining; wholesale or retail trade; transportation; providing utility service, including water, sewerage, electricity, natural gas, propane or butane; publishing, including publishing newspapers or other periodicals; broadcasting; or providing internet operating services; and

                (6) "qualified investment" means a cash investment in a qualified business for equity, but does not include an investment by a taxpayer if the taxpayer, a member of the taxpayer's immediate family or an entity affiliated with the taxpayer receives compensation from the qualified business in exchange for services provided to the qualified business within one year of investment in the qualified business."

     Section 2. TEMPORARY PROVISION.--For taxable years 2010 through 2012, a taxpayer may carry forward amounts resulting from angel investment credits claimed and approved for qualified investments made in the calendar year 2007, 2008 or 2009.

     Section 3. DELAYED REPEAL.--The provisions of Section 1 of this act are repealed on January 1, 2011.

     Section 4. APPLICABILITY.--The provisions of this act apply to taxable years beginning on or after January 1, 2005.

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