HB0448

HOUSE BILL 448

50th legislature - STATE OF NEW MEXICO - first session, 2011

INTRODUCED BY

David C. Chavez

AN ACT

RELATING TO TAXATION; ALLOWING A DEDUCTION FOR CERTAIN DEPRECIABLE ASSETS; AMENDING SECTIONS OF THE INCOME TAX ACT AND THE CORPORATE INCOME AND FRANCHISE TAX ACT; ADDING TO THE DEFINITION OF "BASE INCOME"; AMENDING AND ENACTING SECTIONS OF THE NMSA 1978.

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 and any amount excluded as Section 179 property in the taxable year if the property was placed in service in the taxable year and a deduction from net income for that Section 179 property is to be claimed pursuant to the Income Tax Act;

(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 excluded pursuant to Paragraph (1) of this subsection and less the amount of state and local income and sales taxes included in the taxpayer's itemized deductions;

(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;

(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; and

(8) for taxable years beginning on or after January 1, 2011, an amount equal to the amount included in adjusted gross income that represents a refund of state and local income and sales taxes that were deducted for federal tax purposes in taxable years beginning on or after January 1, 2010;

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. "Section 179 property" means property defined as "Section 179 property" in Section 179 of the Internal Revenue Code, as that section may be amended or renumbered;

[U.] V. "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.] W. "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.] X. "surviving spouse" means "surviving spouse" as generally defined for federal income tax purposes;

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

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

SECTION 2. A new section of the Income Tax Act is enacted to read:

"[NEW MATERIAL] DEDUCTION OF CERTAIN BUSINESS ASSETS.--

A. A taxpayer may elect to treat the cost of property defined in Section 179 of the Internal Revenue Code as an expense that is not charged to a capital account in the first year in which the asset is placed in service. A cost treated as an expense not charged to a capital account shall be allowed as a deduction from net income for the taxable year in which the Section 179 property is placed in service.

B. The purpose of the election allowed in this section is to encourage business investment in Section 179 property.

C. The depreciable value of the Section 179 property deducted pursuant to this section may reduce net income, but not below zero, for the taxable year.

D. A Section 179 property shall not be deducted pursuant to this section if the property is:

(1) depreciated pursuant to Section 167, Section 168 or any other section of the Internal Revenue Code;

(2) treated as an expense that is charged to a capital account pursuant to the Internal Revenue Code; or

(3) the property on which a current taxable year credit taken pursuant to Section 38 of the Internal Revenue Code, as that section may be amended or renumbered, is based.

E. 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 depreciable value of Section 179 property that would have been allowed on a joint return.

F. A taxpayer who otherwise elects to depreciate a Section 179 property pursuant to this section, who is a member of a partnership or other business association, may deduct only that amount of the value of the property that is in proportion to the taxpayer's interest in the partnership or business association. All members of the partnership or business association shall depreciate the same Section 179 property pursuant to the same election in the same taxable year.

G. The department shall compile an annual report that includes the number of taxpayers claiming a deduction and the amount of the deduction claimed pursuant to this section and report to the revenue stabilization and tax policy committee prior to November 1 of each taxable year beginning in 2013. Notwithstanding any other section of law to the contrary, the department may disclose the number of taxpayers claiming deductions pursuant to this section, the amount of deduction claimed and the value of the assets claimed, and any other information that is necessary to evaluate the effectiveness of this tax benefit in encouraging investment by businesses in capital assets.

H. A taxpayer depreciating an asset pursuant to this section shall not claim tax credits pursuant to Section 7-2-18.4, 7-2-18.8, 7-2-18.14, 7-2-18.18, 7-2-18.24, 7-2-18.25 or 7-9G-2 NMSA 1978 or the credit provided pursuant to the Investment Credit Act in regard to the same assets depreciated pursuant to this section."

SECTION 3. Section 7-2A-2 NMSA 1978 (being Laws 1986, Chapter 20, Section 33, as amended) is amended to read:

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

A. "affiliated group" means that term as it is used in the Internal Revenue Code;

B. "bank" means any national bank, national banking association, state bank or bank holding company;

C. "base income" means that part of the taxpayer'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 claimed by the taxpayer for that year and any amount excluded as Section 179 property in the taxable year if the property was placed in service in the taxable year and a deduction from net income for that Section 179 property is to be claimed pursuant to the Corporate Income and Franchise Tax Act; "base income" also includes interest received on a state or local bond;

D. "corporation" means corporations, joint stock companies, real estate trusts organized and operated under the Real Estate Trust Act, financial corporations and banks, other business associations and, for corporate income tax purposes, partnerships and limited liability companies taxed as corporations under the Internal Revenue Code;

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

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

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

H. "net income" means base income adjusted to exclude:

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

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

(3) 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

(4) 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

(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 may 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;

I. "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;

J. "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 (3) or (4) of Subsection H of this section, may be excluded from base income;

K. "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;

L. "secretary" means the secretary of taxation and revenue or the secretary's delegate;

M. "Section 179 property" means property defined as "Section 179 property" in Section 179 of the Internal Revenue Code, as that section may be amended or renumbered;

[M.] N. "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 political subdivision thereof or any political subdivision of a foreign country;

[N.] O. "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;

[O.] P. "taxable year" means the calendar year or fiscal year upon the basis of which the net income is computed under the Corporate Income and Franchise Tax Act and includes, in the case of the return made for a fractional part of a year under the provisions of that act, the period for which the return is made;

[P.] Q. "taxpayer" means any corporation subject to the taxes imposed by the Corporate Income and Franchise Tax Act; and

[Q.] R. "unitary corporations" means two or more integrated corporations, other than any foreign corporation incorporated in a foreign country and not engaged in trade or business in the United States during the taxable year, that are owned in the amount of more than fifty percent and controlled by the same person and for which at least one of the following conditions exists:

(1) there is a unity of operations evidenced by central purchasing, advertising, accounting or other centralized services;

(2) there is a centralized management or executive force and centralized system of operation; or

(3) the operations of the corporations are dependent upon or contribute property or services to one another individually or as a group."

SECTION 4. A new section of the Corporate Income and Franchise Tax Act is enacted to read:

"[NEW MATERIAL] DEPRECIATION OF CERTAIN BUSINESS ASSETS.--

A. A taxpayer may elect to treat the cost of property defined in Section 179 of the Internal Revenue Code as an expense that is not chargeable to a capital account in the first year in which the asset is placed in service. A cost treated as an expense not chargeable to a capital account shall be allowed as a deduction from net income for the taxable year in which the Section 179 property is placed in service.

B. The purpose of the election allowed in this section is to encourage business investment in Section 179 property.

C. The cost of the Section 179 property deducted pursuant to this section may reduce net income, but not below zero, for the taxable year.

D. A Section 179 property shall not be deducted pursuant to this section if the property is:

(1) depreciated pursuant to Section 167, Section 168 or any other section of the Internal Revenue Code;

(2) treated as an expense that is charged to a capital account pursuant to the Internal Revenue Code; or

(3) the property on which a current taxable year credit taken pursuant to Section 38 of the Internal Revenue Code, as that section may be amended or renumbered, is based.

E. The department shall compile an annual report that includes the number of taxpayers claiming a deduction and the amount of the deduction claimed pursuant to this section and report to the revenue stabilization and tax policy committee prior to November 1 of each taxable year beginning in 2013. Notwithstanding any other section of law to the contrary, the department may disclose the number of taxpayers claiming deductions pursuant to this section, the amount of deduction claimed and the value of the assets claimed and any other information that is necessary to evaluate the effectiveness of this tax benefit in encouraging investment by businesses in capital assets.

F. A taxpayer depreciating an asset pursuant to this section shall not claim tax credits pursuant to Section 7-2A-18, 7-2A-21, 7-2A-22 through 7-2A-25 or 7-9G-2 NMSA 1978 or the credit provided in the Investment Credit Act in regard to the same assets depreciated pursuant to this section."

SECTION 5. APPLICABILITY.--The provisions of this act apply to taxable years beginning on or after January 1, 2012.

SECTION 6. EFFECTIVE DATE.--The effective date of the provisions of this act is January 1, 2012.

- 20 -