House Bill text for HB0215

HOUSE BILL 215

49th legislature - STATE OF NEW MEXICO - second session, 2010

INTRODUCED BY

Miguel P. Garcia

AN ACT

RELATING TO TAXATION; RESTORING PROGRESSIVITY TO THE RATES OF INCOME TAX PAID PURSUANT TO THE INCOME TAX ACT; REQUIRING COMBINED REPORTING OF CORPORATE INCOME TAX FOR MULTISTATE CORPORATIONS; DECOUPLING STATE AND LOCAL TAX DEDUCTIONS FROM FEDERAL TAX DEDUCTIONS; ADJUSTING THE CAPITAL GAINS TAX; REPEALING A SECTION OF THE NMSA 1978 PERTAINING TO CONSOLIDATED RETURNS.

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

Section 1. Section 7-2-2 NMSA 1978 (being Laws 1986, Chapter 20, Section 26, as amended) is amended to read:

"7-2-2. DEFINITIONS.--For the purpose of the Income Tax Act and unless the context requires otherwise:

A. "adjusted gross income" means adjusted gross income as defined in Section 62 of the Internal Revenue Code [as that section may be amended or renumbered];

B. "base income":

(1) means, for estates and trusts, that part of the estate's or trust's income defined as taxable income and upon which the federal income tax is calculated in the Internal Revenue Code for income tax purposes plus, for taxable years beginning on or after January 1, 1991, the amount of the net operating loss deduction allowed by Section 172(a) of the Internal Revenue Code [as that section may be amended or renumbered] and taken by the taxpayer for that year;

(2) means, for taxpayers other than estates or trusts, that part of the taxpayer's income defined as adjusted gross income plus, for taxable years beginning on or after January 1, 1991, the amount of the net operating loss deduction allowed by Section 172(a) of the Internal Revenue Code [as that section may be amended or renumbered] and taken by the taxpayer for that year;

(3) includes, for all taxpayers, any other income of the taxpayer not included in adjusted gross income but upon which a federal tax is calculated pursuant to the Internal Revenue Code for income tax purposes, except amounts for which a calculation of tax is made pursuant to Section 55 of the Internal Revenue Code [as that section may be amended or renumbered]; "base income" also includes interest received on a state or local bond; and

(4) includes, for all taxpayers, an amount deducted pursuant to Section 7-2-32 NMSA 1978 in a prior taxable year if:

(a) such amount is transferred to another qualified tuition program, as defined in Section 529 of the Internal Revenue Code, not authorized in the Education Trust Act; or

(b) a distribution or refund is made for any reason other than: 1) to pay for qualified higher education expenses, as defined pursuant to Section 529 of the Internal Revenue Code; or 2) upon the beneficiary's death, disability or receipt of a scholarship;

C. "compensation" means wages, salaries, commissions and any other form of remuneration paid to employees for personal services;

D. "department" means the taxation and revenue department, the secretary or any employee of the department exercising authority lawfully delegated to that employee by the secretary;

E. "fiduciary" means a guardian, trustee, executor, administrator, committee, conservator, receiver, individual or corporation acting in any fiduciary capacity;

F. "filing status" means "married filing joint returns", "married filing separate returns", "head of household", "surviving spouse" and "single", as those terms are generally defined for federal tax purposes;

G. "fiscal year" means any accounting period of twelve months ending on the last day of any month other than December;

H. "head of household" means "head of household" as generally defined for federal income tax purposes;

I. "individual" means a natural person, an estate, a trust or a fiduciary acting for a natural person, trust or estate;

J. "Internal Revenue Code" means the United States Internal Revenue Code of 1986, as amended;

K. "lump-sum amount" means for the purpose of determining liability for federal income tax, an amount that was not included in adjusted gross income but upon which the five-year-averaging or the ten-year-averaging method of tax computation provided in Section 402 of the Internal Revenue Code [as that section may be amended or renumbered] was applied;

L. "modified gross income" means all income of the taxpayer and, if any, the taxpayer's spouse and dependents, undiminished by losses and from whatever source, including:

(1) compensation;

(2) net profit from business;

(3) gains from dealings in property;

(4) interest;

(5) net rents;

(6) royalties;

(7) dividends;

(8) alimony and separate maintenance payments;

(9) annuities;

(10) income from life insurance and endowment contracts;

(11) pensions;

(12) discharge of indebtedness;

(13) distributive share of partnership income;

(14) income in respect of a decedent;

(15) income from an interest in an estate or a trust;

(16) social security benefits;

(17) unemployment compensation benefits;

(18) workers' compensation benefits;

(19) public assistance and welfare benefits;

(20) cost-of-living allowances; and

(21) gifts;

M. "modified gross income" excludes:

(1) payments for hospital, dental, medical or drug expenses to or on behalf of the taxpayer;

(2) the value of room and board provided by federal, state or local governments or by private individuals or agencies based upon financial need and not as a form of compensation;

(3) payments pursuant to a federal, state or local government program directly or indirectly to a third party on behalf of the taxpayer when identified to a particular use or invoice by the payer; or

(4) payments for credits and rebates pursuant to the Income Tax Act and made for a credit pursuant to Section 7-3-9 NMSA 1978;

N. "net income" means, for estates and trusts, base income adjusted to exclude amounts that the state is prohibited from taxing because of the laws or constitution of this state or the United States and means, for taxpayers other than estates or trusts, base income adjusted to exclude:

(1) an amount equal to the standard deduction allowed the taxpayer for the taxpayer's taxable year by Section 63 of the Internal Revenue Code [as that section may be amended or renumbered];

(2) an amount equal to the itemized deductions defined in Section 63 of the Internal Revenue Code [as that section may be amended or renumbered] allowed the taxpayer for the taxpayer's taxable year less the amount of state and local taxes included in the taxpayer's itemized deduction and less the amount excluded pursuant to Paragraph (1) of this subsection;

(3) an amount equal to the product of the exemption amount allowed for the taxpayer's taxable year by Section 151 of the Internal Revenue Code, [as that section may be amended or renumbered] multiplied by the number of personal exemptions allowed for federal income tax purposes;

(4) income from obligations of the United States of America less expenses incurred to earn that income;

(5) other amounts that the state is prohibited from taxing because of the laws or constitution of this state or the United States;

(6) for taxable years that began prior to January 1, 1991, an amount equal to the sum of:

(a) net operating loss carryback deductions to that year from taxable years beginning prior to January 1, 1991 claimed and allowed, as provided by the Internal Revenue Code; and

(b) net operating loss carryover deductions to that year claimed and allowed; and

(7) for taxable years beginning on or after January 1, 1991, an amount equal to the sum of any net operating loss carryover deductions to that year claimed and allowed, provided that the amount of any net operating loss carryover from a taxable year beginning on or after January 1, 1991 may be excluded only as follows:

(a) in the case of a timely filed return, in the taxable year immediately following the taxable year for which the return is filed; or

(b) in the case of amended returns or original returns not timely filed, in the first taxable year beginning after the date on which the return or amended return establishing the net operating loss is filed; and

(c) in either case, if the net operating loss carryover exceeds the amount of net income exclusive of the net operating loss carryover for the taxable year to which the exclusion first applies, in the next four succeeding taxable years in turn until the net operating loss carryover is exhausted; in no event shall a net operating loss carryover be excluded in any taxable year after the fourth taxable year beginning after the taxable year to which the exclusion first applies;

O. "net operating loss" means any net operating loss, as defined by Section 172(c) of the Internal Revenue Code [as that section may be amended or renumbered] for a taxable year as further increased by the income, if any, from obligations of the United States for that year less related expenses;

P. "net operating loss carryover" means the amount, or any portion of the amount, of a net operating loss for any taxable year that, pursuant to Paragraph (6) or (7) of Subsection N of this section, may be excluded from base income;

Q. "nonresident" means every individual not a resident of this state;

R. "person" means any individual, estate, trust, receiver, cooperative association, club, corporation, company, firm, partnership, limited liability company, joint venture, syndicate or other association; "person" also means, to the extent permitted by law, any federal, state or other governmental unit or subdivision or agency, department or instrumentality thereof;

S. "resident" means an individual who is domiciled in this state during any part of the taxable year or an individual who is physically present in this state for one hundred eighty-five days or more during the taxable year; but any individual, other than someone who was physically present in the state for one hundred eighty-five days or more during the taxable year, who, on or before the last day of the taxable year, changed the individual's place of abode to a place without this state with the bona fide intention of continuing actually to abide permanently without this state is not a resident for the purposes of the Income Tax Act for periods after that change of abode;

T. "secretary" means the secretary of taxation and revenue or the secretary's delegate;

U. "state" means any state of the United States, the District of Columbia, the commonwealth of Puerto Rico, any territory or possession of the United States or any political subdivision of a foreign country;

V. "state or local bond" means a bond issued by a state other than New Mexico or by a local government other than one of New Mexico's political subdivisions, the interest from which is excluded from income for federal income tax purposes under Section 103 of the Internal Revenue Code [as that section may be amended or renumbered];

W. "surviving spouse" means "surviving spouse" as generally defined for federal income tax purposes;

X. "taxable income" means net income less any lump-sum amount;

Y. "taxable year" means the calendar year or fiscal year upon the basis of which the net income is computed under the Income Tax Act and includes, in the case of the return made for a fractional part of a year under the provisions of the Income Tax Act, the period for which the return is made; and

Z. "taxpayer" means any individual subject to the tax imposed by the Income Tax Act."

Section 2. Section 7-2-7 NMSA 1978 (being Laws 2005, Chapter 104, Section 4) is amended to read:

"7-2-7. INDIVIDUAL INCOME TAX RATES.--The tax imposed by Section 7-2-3 NMSA 1978 shall be at the following rates for any taxable year beginning on or after January 1, [2008] 2010:

A. For married individuals filing separate returns:

If the taxable income is: The tax shall be:

Not over $4,000 1.7% of taxable income

Over $ 4,000 but not over $ 8,000 $ 68.00 plus 3.2% of excess over $ 4,000

Over $ 8,000 but not over $ 12,000 $ 196 plus 4.7% of excess over $ 8,000

Over $ 12,000 but not over $100,000 $ 384 plus 4.9% of excess over $ 12,000

Over $100,000 but not over $250,000 $ 4,696 plus 5.3% of excess over $100,000

Over $250,000 but not over $500,000 $ 9,996 plus 6.0% of excess over $250,000

Over $500,000 $24,996 plus 6.9% of excess over $500,000.

B. For heads of household, surviving spouses and married individuals filing joint returns:

If the taxable income is: The tax shall be:

Not over $8,000 1.7% of taxable income

Over $ 8,000 but not over $ 16,000 $ 136 plus 3.2% of excess over $ 8,000

Over $ 16,000 but not over $ 24,000 $ 392 plus 4.7% of excess over $ 16,000

Over $ 24,000 but not over $200,000 $ 768 plus 4.9% of excess over $ 24,000

Over $200,000 but not over $500,000 $ 9,392 plus 5.3% of excess over $200,000

Over $500,000 but not over $1,000,000 $25,292 plus 6.0% of excess over $500,000

Over $1,000,000 $55,292 plus 6.9% of excess over $1,000,000.

C. For single individuals and for estates and trusts:

If the taxable income is: The tax shall be:

Not over $5,500 1.7% of taxable income

Over $ 5,500 but not over $ 11,000 $ 93.50 plus 3.2% of excess over $ 5,500

Over $ 11,000 but not over $ 16,000 $ 269.50 plus 4.7% of excess over $ 11,000

Over $ 16,000 but not over $133,000 $ 504.50 plus 4.9% of excess over $ 16,000

Over $133,000 but not over $333,000 $6,237.50 plus 5.3% of excess over $133,000

Over $333,000 but not over $667,000 $16,837.50 plus 6.0% of excess over $333,000

Over $667,000 $36,877.50 plus 6.9% of

excess over $667,000.

D. The tax on the sum of any lump-sum amounts included in net income is an amount equal to five multiplied by the difference between:

(1) the amount of tax due on the taxpayer's taxable income; and

(2) the amount of tax that would be due on an amount equal to the taxpayer's taxable income and twenty percent of the taxpayer's lump-sum amounts included in net income."

Section 3. Section 7-2-34 NMSA 1978 (being Laws 1999, Chapter 205, Section 1, as amended) is amended to read:

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

A. Except as provided in Subsection C of this section, a taxpayer:

(1) with taxable income equal to or less than two hundred thousand dollars ($200,000) may claim a deduction from net income in an amount equal to the greater of:

[(1)] (a) 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 following percentage of the taxpayer's net capital gain income for the taxable year for which the deduction is being claimed:

(a) for a taxable year beginning in 2003, ten percent;

(b) for a taxable year beginning in 2004, twenty percent;

(d) for a taxable year beginning in 2006, forty percent; and

(e) for taxable years beginning on or after January 1, 2007]

(b) fifty percent of the taxpayer's net

capital gain income for the taxable year for which the deduction is being claimed; and

(2) with taxable income greater than two hundred thousand dollars ($200,000) may claim a deduction from net income in an amount equal to the taxpayer's net capital gain income for the taxable year for which the deduction is being claimed. The amount claimed shall not exceed one thousand dollars ($1,000).

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.

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.

D. As used in this section, "net capital gain" means "net capital gain" as defined in Section 1222 (11) of the Internal Revenue Code."

Section 4. Section 7-2A-8.3 NMSA 1978 (being Laws 1983, Chapter 213, Section 12, as amended by Laws 1993, Chapter 307, Section 4 and also by Laws 1993, Chapter 309, Section 2) is amended to read:

"7-2A-8.3. COMBINED RETURNS.--

A. A unitary corporation that is subject to taxation under the Corporate Income and Franchise Tax Act [and that has not previously filed a combined return pursuant to this section or a consolidated return pursuant to Section 7-2A-8.4 NMSA 1978 may elect to] shall file a combined return with other unitary corporations as though the entire combined net income were that of one corporation. The return filed under this method of reporting shall include the net income of all the unitary corporations. Transactions among the unitary corporations may be eliminated by applying the appropriate rules for reporting income for a consolidated federal income tax return. [Any corporation that has filed an income tax return with New Mexico pursuant to Section 7-2A-8.4 NMSA 1978 shall not file pursuant to this section unless the secretary gives prior permission to file on a combined return basis.]

B. Once corporations have reported net income through a combined return for any taxable year, they shall file combined returns for subsequent taxable years, so long as they remain unitary corporations, [unless the corporations elect to file pursuant to Section 7-2A-8.4 NMSA 1978 or] unless the secretary grants prior permission for one or more of the corporations to file individually.

[C. For taxable years beginning on or after January 1, 1993, no unitary corporation once included in a combined return may elect, or be granted permission by the secretary, for any subsequent taxable year to separately account pursuant to Paragraph (4) of Subsection A of Section 7-2A-8 NMSA 1978.]"

Section 5. TEMPORARY PROVISION.--For the 2010 taxable year, a taxpayer is deemed to have complied with the provisions of Section 7-2-12.2 NMSA 1978 if the taxpayer has made the required annual payments of estimated taxes due for taxable year 2010 based on the provisions of the version of Section 7-2-7 NMSA 1978 applicable on January 1, 2008 through December 31, 2009.

Section 6. REPEAL.--Section 7-2A-8.4 NMSA 1978 (being Laws 1983, Chapter 213, Section 13, as amended by Laws 1993, Chapter 307, Section 5 and by Laws 1993, Chapter 309, Section 3) is repealed.

Section 7. APPLICABILITY.--

A. The provisions of Sections 1 and 2 of this act apply to taxable years beginning on or after January 1, 2010.

B. The provisions of Section 3 and 4 of this act apply to taxable years beginning on or after January 1, 2011.

Section 8. EFFECTIVE DATE.--The effective date of the provisions of Section 4 of this act is January 1, 2011.

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