SENATE CORPORATIONS AND TRANSPORTATION COMMITTEE SUBSTITUTE FOR
SENATE BILL 639
51st legislature - STATE OF NEW MEXICO - first session, 2013
AN ACT
RELATING TO THE PUBLIC PEACE, HEALTH, SAFETY AND WELFARE; REDUCING CORPORATE INCOME TAX RATES; REQUIRING COMBINED REPORTING FOR CERTAIN UNITARY CORPORATIONS; PHASING IN THE USE OF A SINGLE SALES FACTOR BY TAXPAYERS WHOSE PRINCIPAL BUSINESS ACTIVITY IS MANUFACTURING OVER FIVE YEARS; EXCLUDING CERTAIN SALES FROM BEING APPORTIONED AS SALES IN NEW MEXICO; CLARIFYING APPLICATION OF THE HIGH-WAGE JOBS TAX CREDIT; REQUIRING ANNUAL REPORTING ON THE EFFECTIVENESS OF THE HIGH-WAGE JOBS TAX CREDIT; DEFINING "BENEFITS" AND "WAGES"; INCREASING WAGES AND POPULATION TO QUALIFY FOR A HIGH-WAGE JOBS TAX CREDIT; PROVIDING FOR AN ANNUAL MAXIMUM AGGREGATE OF FIFTY MILLION DOLLARS ($50,000,000) IN HIGH-WAGE JOBS TAX CREDITS; MODIFYING THE PHASE-IN OF A DEDUCTION FROM GROSS RECEIPTS FOR CERTAIN RECEIPTS FROM SALES OF TANGIBLE PERSONAL PROPERTY CONSUMED IN THE MANUFACTURING PROCESS; REPEALING SECTION 7-2-34 NMSA 1978 (BEING LAWS 1999, CHAPTER 205, SECTION 1, AS AMENDED).
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF NEW MEXICO:
SECTION 1. Section 7-2A-5 NMSA 1978 (being Laws 1981, Chapter 37, Section 38, as amended) is amended to read:
"7-2A-5. CORPORATE INCOME TAX RATES.--The corporate income tax imposed on corporations by Section 7-2A-3 NMSA 1978 shall be at the rates specified in the following table:
If the net income is: The tax shall be:
Not over $500,000 [4.8%] 4.2% of net income
Over $500,000 but not [$24,000] $21,000
over $1,000,000 plus [6.4%] 4.6% of excess over $500,000
Over $1,000,000 [$56,000] $44,000 plus [7.6%] 5.0% of excess over $1,000,000."
SECTION 2. 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 file a combined return with other unitary corporations as though the entire combined net income were that of one corporation; provided, however, that a unitary corporation that provides retail sales of goods in a facility of more than thirty thousand square feet under one roof in New Mexico 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 3. Section 7-4-10 NMSA 1978 (being Laws 1993, Chapter 153, Section 1, as amended) is amended to read:
"7-4-10. APPORTIONMENT OF BUSINESS INCOME.--
A. Except as provided in Subsection B of this section, all business income shall be apportioned to this state by multiplying the income by a fraction, the numerator of which is the property factor plus the payroll factor plus the sales factor and the denominator of which is three.
[B. For taxable years beginning prior to January 1, 2020, a taxpayer whose principal business activity is manufacturing may elect to have business income apportioned to this state by multiplying the income by a fraction, the numerator of which is the property factor plus the payroll factor plus twice the sales factor and the denominator of which is four. To elect the method of apportionment provided by this subsection, the taxpayer shall notify the department of the election, in writing, no later than the date on which the taxpayer files the return for the first taxable year to which the election will apply. The election will apply to that taxable year and to each taxable year thereafter until the taxpayer notifies the department, in writing, that the election is terminated, except that the taxpayer shall not terminate the election until the method of apportioning business income provided by this subsection has been used by the taxpayer for at least three consecutive taxable years, including a total of at least thirty-six calendar months. Notwithstanding any provisions of this subsection to the contrary, the taxpayer shall use the method of apportionment provided by Subsection A of this section for the taxable year unless:
(1) the taxpayer's corporate income tax liability for the taxable year, computed by the same method of apportionment used in the preceding taxable year, exceeds the corporate income tax liability for the taxpayer's immediately preceding taxable year; or
(2) the sum of the taxpayer's payroll factor and property factor for the taxable year exceeds the sum of the taxpayer's payroll factor and property factor for the taxpayer's base year. For purposes of this paragraph, "base year" means the taxpayer's first taxable year beginning on or after January 1, 1991.]
B. A taxpayer that is a business engaged in manufacturing may elect to have business income apportioned to this state:
(1) in the taxable year beginning on or after January 1, 2014 and prior to January 1, 2015, by multiplying the income by a fraction, the numerator of which is twice the sales factor plus the property factor plus the payroll factor and the denominator of which is four;
(2) in the taxable year beginning on or after January 1, 2015 and prior to January 1, 2016, by multiplying the income by a fraction, the numerator of which is three multiplied by the sales factor plus the property factor plus the payroll factor and the denominator of which is five;
(3) in the taxable year beginning on or after January 1, 2016 and prior to January 1, 2017, by multiplying the income by a fraction, the numerator of which is seven multiplied by the sales factor plus one and one-half multiplied by the property factor plus one and one-half multiplied by the payroll factor and the denominator of which is ten;
(4) in the taxable year beginning on or after January 1, 2017 and prior to January 1, 2018, by multiplying the income by a fraction, the numerator of which is eight multiplied by the sales factor plus the property factor plus the payroll factor and the denominator of which is ten; and
(5) in taxable years beginning on or after January 1, 2018, by multiplying the income by a fraction, the numerator of which is the total sales of the taxpayer in New Mexico during the taxable year and the denominator of which is the total sales of the taxpayer from any location within or outside of the state during the taxable year.
C. To elect the method of apportionment provided by Subsection B of this section, the taxpayer shall notify the department of the election, in writing, no later than the date on which the taxpayer files the return for the first taxable year to which the election will apply. The election shall apply to that taxable year and to each taxable year thereafter until the taxpayer notifies the department, in writing, that the election is terminated; provided that the taxpayer shall not terminate the election until the method of apportioning business income provided by Subsection B of this section has been used by the taxpayer for at least three consecutive taxable years, including a total of at least thirty-six calendar months.
[C.] D. For purposes of this section, "business engaged in manufacturing" means [combining or processing components or materials to increase their value for sale in the ordinary course of business, but does not include:
(1) construction;
(2) farming;
(3) power generation, except for electricity generation at a facility other than one for which both location approval and a certificate of convenience and necessity are required prior to commencing construction or operation of the facility, pursuant to the Public Utility Act; or
(4) processing natural resources, including hydrocarbons] a business classified within the manufacturing sector as described in the official 2012 United States North American industry classification system manual."
SECTION 4. Section 7-4-17 NMSA 1978 (being Laws 1965, Chapter 203, Section 17) is amended to read:
"7-4-17. DETERMINATION OF SALES IN THIS STATE OF TANGIBLE PERSONAL PROPERTY FOR INCLUSION IN SALES FACTOR.--Sales of tangible personal property are in this state if:
A. the property is delivered or shipped to a purchaser other than the United States government within this state regardless of the f. o. b. point or other conditions of the sale; or
B. the property is shipped from an office, store, warehouse, factory or other place of storage in this state and:
(1) the purchaser is the United States government; or
(2) the taxpayer:
(a) is not taxable in the state of the purchaser; and
(b) did not make an election for
apportionment of business income pursuant to Subsection B of Section 7-4-10 NMSA 1978."
SECTION 5. Section 7-9-46 NMSA 1978 (being Laws 1969, Chapter 144, Section 36, as amended) is amended to read:
"7-9-46. DEDUCTION--GROSS RECEIPTS TAX--GOVERNMENTAL GROSS RECEIPTS--SALES TO MANUFACTURERS.--
A. Receipts from selling tangible personal property may be deducted from gross receipts or from governmental gross receipts if the sale is made to a person engaged in the business of manufacturing who delivers a nontaxable transaction certificate to the seller. The buyer delivering the nontaxable transaction certificate must incorporate the tangible personal property as an ingredient or component part of the product that the buyer is in the business of manufacturing.
B. Receipts from selling tangible personal property that is used in such a way that it is consumed in the manufacturing process of a product, provided that the tangible personal property is not a tool or equipment used to create the manufactured product, to a person engaged in the business of manufacturing that product and who delivers a nontaxable transaction certificate to the seller may be deducted in the following percentages from gross receipts or from governmental gross receipts:
(1) twenty percent of receipts received prior to January 1, 2014;
(2) forty percent of receipts received in calendar year 2014;
[(3) sixty percent of receipts received in calendar year 2015;
(4) eighty percent of receipts received in calendar year 2016; and
(5) one hundred percent of receipts received on or after January 1, 2017] and
(3) fifty percent of receipts received on or after January 1, 2015.
C. The purpose of the deductions provided in this section is to encourage manufacturing businesses to locate in New Mexico and to reduce the tax burden, including reducing pyramiding, on the tangible personal property that is consumed in the manufacturing process and that is purchased by manufacturing businesses in New Mexico.
D. The department shall annually report to the revenue stabilization and tax policy committee the aggregate amount of deductions taken pursuant to this section, the number of taxpayers claiming each of the deductions and any other information that is necessary to determine that the deductions are performing the purposes for which they are enacted.
E. A taxpayer deducting gross receipts pursuant to this section shall report the amount deducted separately for each deduction provided in this section and attribute the amount of the deduction to the appropriate authorization provided in this section in a manner required by the department that facilitates the evaluation by the legislature of the benefit to the state of these deductions."
SECTION 6. Section 7-9G-1 NMSA 1978 (being Laws 2004, Chapter 15, Section 1, as amended) is amended to read:
"7-9G-1. HIGH-WAGE JOBS TAX CREDIT--QUALIFYING
HIGH-WAGE JOBS.--
A. A taxpayer who is an eligible employer may apply for, and the taxation and revenue department may allow, a tax credit for each new high-wage economic-based job. The credit provided in this section may be referred to as the "high-wage jobs tax credit".
B. The high-wage jobs tax credit may be claimed and allowed in an amount equal to ten percent of the wages and benefits distributed to an eligible employee in a new high-wage economic-based job, but shall not exceed twelve thousand dollars ($12,000).
C. The high-wage jobs tax credit may be claimed by an eligible employer for each new high-wage economic-based job performed for the year in which the new high-wage economic-based job is created and for the three following qualifying periods. A taxpayer shall apply for approval for the credit within one year following the end of the calendar year in which the qualifying period closes.
D. A new high-wage economic-based job shall not be eligible for a credit pursuant to this section unless the eligible employer's total number of employees with new high-wage economic-based jobs on the last day of the qualifying period at the location at which the job is performed or based is at least one more than the number on the day prior to the date the job was created.
E. A new high-wage economic-based job shall not be eligible for a credit pursuant to this section if:
(1) the new high-wage economic-based job is created due to a business merger or acquisition or other change in business organization;
(2) the eligible employee was terminated from employment in New Mexico by another employer involved in the business merger or acquisition or other change in business organization with the taxpayer;
(3) the new high-wage economic-based job is performed by:
(a) the person who performed the job or its functional equivalent prior to the business merger or acquisition or other change in business organization; or
(b) a person replacing the person who performed the job or its functional equivalent prior to a business merger or acquisition or other change in business organization; and
(4) the new high-wage economic-based job or its functional equivalent previously qualified for the high-wage jobs tax credit but the employer, prior to a business merger or acquisition or other change in business organization, was not approved for the credit.
F. Notwithstanding the provisions of Subsection E of this section, a new high-wage economic-based job that was created by another employer and for which an application for the high-wage jobs tax credit was received and is under review by the taxation and revenue department prior to the time of the business merger or acquisition or other change in business organization shall remain eligible for the high-wage jobs tax credit for the balance of the qualifying periods. The new employer that results from a business merger or acquisition or other change in business organization may only claim the high-wage jobs tax credit for the balance of the qualifying periods for which the qualifying job is otherwise eligible.
G. A job shall not be eligible for a credit pursuant to this section if the job is created due to an eligible employer entering into a contract or becoming a subcontractor to a contract with a governmental entity that replaces one or more entities performing functionally equivalent services for the governmental entity unless the job is a new high-wage economic-based job that was not being performed by an employee of the replaced entity.
[E.] H. With respect to each new high-wage economic-based job for which an eligible employer seeks the high-wage jobs tax credit, the employer shall certify:
(1) the amount of wages and benefits paid to each eligible employee in a new high-wage economic-based job during each qualifying period;
(2) the number of weeks the position was occupied during the qualifying period;
(3) [whether the new high-wage economic-based job was in a municipality with a population of forty thousand or more or with a population of less than forty thousand] the population of the municipality, according to the most recent federal decennial census, where the new high-wage economic-based job was located and whether the job was in the unincorporated area of a county; and
(4) the total number of employees employed by the employer at the job location on the day prior to the qualifying period and on the last day of the qualifying period.
[F.] I. To receive a high-wage jobs tax credit with respect to any qualifying period, an eligible employer shall apply to the taxation and revenue department on forms and in the manner prescribed by the department. The application shall include a certification made pursuant to Subsection [E] H of this section. Applications for the high-wage jobs tax credit shall be considered in the order received by the taxation and revenue department.
J. The taxation and revenue department may allow a maximum aggregate in a calendar year of fifty million dollars ($50,000,000) in high-wage jobs tax credits provided by this section. A taxpayer who submits a claim for a high-wage jobs tax credit who is unable to receive the tax credit because the claims for the year exceed the aggregate limitation in this subsection shall be placed for the subsequent calendar year at the front of a queue of high-wage jobs tax credit claimants submitting claims in the subsequent year in the order of the date on which the department received the application.
[G.] K. The credit provided in this section may be deducted from the modified combined tax liability of a taxpayer. If the credit exceeds the modified combined tax liability of the taxpayer, the excess shall be refunded to the taxpayer.
L. A taxpayer allowed a high-wage jobs tax credit shall report annually by June 30 to the taxation and revenue department on the activities of the taxpayer in the preceding calendar year on a form developed by the department. Acceptance of a taxpayer of a high-wage jobs tax credit pursuant to this section is authorization by the taxpayer receiving the tax credit for the department to reveal information to the legislative finance committee and the interim revenue stabilization and tax policy committee necessary to analyze the effectiveness of the high-wage jobs tax credit pursuant to this section.
M. The taxation and revenue department shall compile an annual report that includes the number of taxpayers approved by the department to receive a high-wage jobs tax credit, the number of applicants for the high-wage jobs tax credit, the amount of each credit approved, the number of eligible employees hired, the cost of the tax credit to the state and any other information required by the legislature or the taxation and revenue department to aid in evaluating the effectiveness of the high-wage jobs tax credit. The report shall be presented to the legislative finance committee and the interim revenue stabilization and tax policy committee.
[H.] N. The economic development department shall report to the appropriate interim legislative committee before November 1 of each year the [cost of this tax credit to the state and its] impact of the tax credit on company recruitment and job creation.
[I.] O. As used in this section:
[(1) "benefits" means any employee benefit plan as defined in Title 1, Section 3 of the federal Employee Retirement Income Security Act of 1974, 29 U.S.C. 1002;]
(1) "benefits" means all remuneration for work performed that is provided to an employee in whole or in part by the employer, other than wages, including insurance programs, health care, medical, dental and vision plans, life insurance, employer contributions to pensions, such as a 401(k), and employer-provided services, such as child care, offered by an employer to the employee;
(2) "eligible employee" means an individual who is employed in New Mexico by an eligible employer and who is a resident of New Mexico; "eligible employee" does not include an individual who:
(a) bears any of the relationships described in Paragraphs (1) through (8) of 26 U.S.C. Section 152(a) to the employer or, if the employer is a corporation, to an individual who owns, directly or indirectly, more than fifty percent in value of the outstanding stock of the corporation or, if the employer is an entity other than a corporation, to an individual who owns, directly or indirectly, more than fifty percent of the capital and profits interest in the entity;
(b) if the employer is an estate or trust, is a grantor, beneficiary or fiduciary of the estate or trust or is an individual who bears any of the relationships described in Paragraphs (1) through (8) of 26 U.S.C. Section 152(a) to a grantor, beneficiary or fiduciary of the estate or trust;
(c) is a dependent, as that term is described in 26 U.S.C. Section 152(a)(9), of the employer or, if the taxpayer is a corporation, of an individual who owns, directly or indirectly, more than fifty percent in value of the outstanding stock of the corporation or, if the employer is an entity other than a corporation, of an individual who owns, directly or indirectly, more than fifty percent of the capital and profits interest in the entity or, if the employer is an estate or trust, of a grantor, beneficiary or fiduciary of the estate or trust; or
(d) is working or has worked as an employee or as an independent contractor for an entity that directly or indirectly owns stock in a corporation of the eligible employer or other interest of the eligible employer that represents fifty percent or more of the total voting power of that entity or has a value equal to fifty percent or more of the capital and profits interest in the entity;
(3) "eligible employer" means an employer that
[(a) made more than fifty percent of its sales to persons outside New Mexico during the most recent twelve months of the employer's modified combined tax liability reporting periods ending prior to claiming a jobs tax credit; or
(b)] is certified by the economic development department to be eligible for development training program assistance pursuant to Section 21-19-7 NMSA 1978;
(4) "modified combined tax liability" means the total liability for the reporting period for the gross receipts tax imposed by Section 7-9-4 NMSA 1978 together with any tax collected at the same time and in the same manner as the gross receipts tax, such as the compensating tax, the withholding tax, the interstate telecommunications gross receipts tax, the surcharges imposed by Section 63-9D-5 NMSA 1978 and the surcharge imposed by Section 63-9F-11 NMSA 1978, minus the amount of any credit other than the high-wage jobs tax credit applied against any or all of these taxes or surcharges; but "modified combined tax liability" excludes all amounts collected with respect to local option gross receipts taxes;
(5) "new high-wage economic-based job" means a new job created in New Mexico by an eligible employer on or after July 1, 2004 and prior to July 1, 2015 that is occupied for at least forty-eight weeks of a qualifying period by an eligible employee who:
(a) for a new high-wage economic-based job created prior to January 1, 2013 is paid wages calculated for the qualifying period to be at least: [(a)] 1) forty thousand dollars ($40,000) if the job is performed or based in a municipality with a population of forty thousand or more according to the most recent federal decennial census; and [(b)] 2) twenty-eight thousand dollars ($28,000) if the job is performed or based in a municipality with a population of less than forty thousand according to the most recent federal decennial census or in the unincorporated area of a county; and
(b) for a new high-wage economic-based job created on or after January 1, 2013 is paid wages calculated for the qualifying period to be at least: 1) sixty-five thousand dollars ($65,000) if the job is performed or based in a municipality with a population of sixty thousand or more according to the most recent federal decennial census; and 2) forty thousand dollars ($40,000) if the job is performed or based in a municipality with a population of less than sixty thousand according to the most recent federal decennial census or in the unincorporated area of a county;
(6) "qualifying period" means the period of twelve months beginning on the day an eligible employee begins working in a new high-wage economic-based job or the period of twelve months beginning on the anniversary of the day an eligible employee began working in a new high-wage economic-based job; and
(7) "wages" means [wages as defined in Paragraphs (1), (2) and (3) of 26 U.S.C. Section 51(c)] all gross wages and other compensation, before any payroll deductions, paid for services rendered by an individual, including commissions, cost-of-living allowances, overtime pay, hazardous-duty pay, incentive pay, on-call pay, shift differentials and bonuses, but "wages" does not include benefits."
SECTION 7. DELAYED REPEAL.--Section 7-2-34 NMSA 1978 (being Laws 1999, Chapter 205, Section 1, as amended) is repealed effective January 1, 2014.
SECTION 8. APPLICABILITY.--
A. The provisions of Sections 1 through 4 and 7 of this act apply to taxable years beginning on or after January 1, 2014.
B. The provisions of Section 6 of this act apply to taxable years beginning on or after January 1, 2013.
SECTION 9. EFFECTIVE DATE.--
A. The effective date of the provisions of Sections 1 through 5 of this act is January 1, 2014.
B. The effective date of the provisions of Section 6 of this act is July 1, 2013.
- 21 -