HOUSE BILL 358

52nd legislature - STATE OF NEW MEXICO - first session, 2015

INTRODUCED BY

Sarah Maestas Barnes

AN ACT

RELATING TO TAXATION; CREATING A DEDUCTION FROM INCOME TAX FOR A BUSINESS WITH ANNUAL BUSINESS INCOME LESS THAN THREE HUNDRED FIFTY THOUSAND DOLLARS ($350,000) THAT EMPLOYS AT LEAST ONE FULL-TIME EQUIVALENT EMPLOYEE.

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] DEDUCTION--PERCENTAGE OF BUSINESS INCOME.--

          A. A taxpayer who is not a dependent of another individual may claim a deduction from net income in an amount provided in Subsection B of this section; provided that, in the taxable year for which the deduction is claimed:

                (1) the taxpayer's business income from all businesses for which the taxpayer has an equity interest is three hundred fifty thousand dollars ($350,000) or less;

                (2) the taxpayer's base income is two hundred thousand dollars ($200,000) or less; and

                (3) any one business for which the taxpayer has an equity interest, and for which the deduction is being claimed, employs at least one full-time equivalent employee that is a New Mexico resident for at least forty-eight weeks; provided that the full-time equivalent employee is not the taxpayer or any person with an equity interest in the business for which the taxpayer has recognized business income.

          B. The amount of deduction pursuant to this section that may be claimed for a taxable year shall equal the following percentages of business income otherwise included in the taxpayer's net income:

                (1) for the first fifty thousand dollars ($50,000) of business income, one hundred percent;

                (2) for the second fifty thousand dollars ($50,000) of business income, eighty-five percent;

                (3) for the third fifty thousand dollars ($50,000) of business income, seventy percent;

                (4) for the fourth fifty thousand dollars ($50,000) of business income, fifty-five percent;

                (5) for the fifth fifty thousand dollars ($50,000) of business income, forty percent;

                (6) for the sixth fifty thousand dollars ($50,000) of business income, twenty-five percent; and

                (7) for the seventh fifty thousand dollars ($50,000) of business income, ten percent.

          C. Married individuals filing separate returns for a taxable year for 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 claimed on a joint return.

          D. A taxpayer allowed a deduction pursuant to this section shall report the amount of the deduction to the department in a manner required by the department.

          E. The department shall compile an annual report on the deduction provided by this section that shall include the number of taxpayers that claimed the deduction, the aggregate amount of deductions claimed and any other information necessary to evaluate the effectiveness of the deduction. Beginning in 2017 and every year thereafter that the deduction is in effect, the department shall compile and present the annual reports to the revenue stabilization and tax policy committee and the legislative finance committee.

          F. As used in this section:

                (1) "business income" means that part of a taxpayer's income from a business that maintains its principal place of business in New Mexico that:

                     (a) is defined as taxable income upon which the federal income tax is calculated in the Internal Revenue Code for income tax purposes and claimed by the taxpayer for that year;

                     (b) includes interest received on a state or local bond; and

                     (c) is treated as nonpassive income pursuant to Section 469 of the Internal Revenue Code, as that section was in effect on January 1, 2015, or net earnings from self-employment as that term is defined in Section 1402 of the Internal Revenue Code; and

                (2) "full-time equivalent employee" means:

                     (a) an employee that works an average of at least thirty-two hours per week; or

                     (b) a combination of employees, each of whom do not individually work an average of at least thirty-two hours per week, but collectively work an average of at least thirty-two hours per week."

     SECTION 2. APPLICABILITY.--The provisions of this act apply to taxable years beginning on or after January 1, 2016.

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