HOUSE BILL 406

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

INTRODUCED BY

Jim R. Trujillo

AN ACT

RELATING TO TAXATION; PROVIDING A DEDUCTION FROM NET INCOME OF AN ESTATE OR TRUST IN THE AMOUNT OF PERMANENT DISTRIBUTIONS TO A NONRESIDENT INDIVIDUAL.

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--PERMANENT DISTRIBUTIONS TO A NONRESIDENT INDIVIDUAL FROM NET INCOME OF AN ESTATE OR TRUST.--

          A. Prior to January 1, 2021, a taxpayer that is an estate or trust may claim a deduction from net income in the amount equal to income, excluding income derived from real property located in New Mexico, mineral, oil and gas interests located in New Mexico and water rights located in New Mexico, that is set aside for future distribution to a nonresident individual beneficiary under the terms of the governing instrument of the estate or trust.

          B. The purpose of the deduction provided by this section is to assist in the expansion of the trust and estate business in New Mexico.

          C. A determination as to whether and to what extent income is set aside for future distribution to a nonresident individual beneficiary shall be made as follows:

                (1) if all or part of the federal taxable income of the estate or trust is distributable in future taxable years, whether or not added to estate or trust corpus for estate or trust accounting purposes, to or for the benefit of a named individual beneficiary or a first-named class of individual beneficiaries and if, on the last day of the taxable year of the estate or trust, one or more named individual beneficiaries or one or more members of the first-named class of individual beneficiaries is living, the portion of the federal taxable income of the estate or trust considered set aside for future distribution to a nonresident individual beneficiary shall be determined as follows:

                     (a) in the case of a named individual beneficiary, by first determining the share or shares of each named individual beneficiary as if the estate or trust had terminated on the last day of the taxable year and then determining the portion of such income realized by the estate or trust during the taxable year while the beneficiary was a nonresident; and

                     (b) in the case of a first-named class of beneficiaries, by first determining who the members of the class would be and the share of each member if the estate or trust had terminated on the last day of the taxable year and then determining the portion of income of each such share realized by the estate or trust while the member was a nonresident; and

                (2) if all or part of the federal taxable income of the estate or trust is distributable in future taxable years, whether or not added to estate or trust corpus for estate or trust accounting purposes, to or for the benefit of a named individual beneficiary or a first-named class of individual beneficiaries and if, on the last day of the taxable year of the estate or trust, one or more named individual beneficiaries or more members of the first-named class of individual beneficiaries is living, the portion of the federal taxable income of the estate or trust considered set aside for future distribution to a nonresident individual beneficiary shall be determined in the manner provided in Paragraph (1) of this subsection, except that it will be presumed that:

                     (a) in the case of a named individual beneficiary, the beneficiary was living and residing in the state where the putative parents resided during the taxable year; and

                     (b) in the case of the first-named class of beneficiaries, any member of the class was living and residing with the person the relationship to whom determines or defines the membership in the class.

          D. In determining the share of each beneficiary of an estate or trust in the federal taxable income pursuant to Subsection C of this section, the discretion of any person over the distribution of such income, whether or not acting in a fiduciary capacity and whether or not subject to a standard, shall be presumed not to have been exercised unless such discretion was irrevocably exercised as of the last day of the taxable year.

          E. In determining when federal taxable income was realized pursuant to Subsection C of this section, the following rules shall apply for determining the deduction provided by this section:

                (1) interest income shall be considered realized when payable;

                (2) dividend income shall be considered realized on the day the dividend is payable;

                (3) gains and losses from the sale or exchange of property shall be considered realized or deductible, as the case may be, on the settlement date of the sale or the effective date of the exchange; and

                (4) commissions on income or principal shall be deemed deductible on the date charged.

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

          G. 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 2018, the department shall compile and present the annual reports to the revenue stabilization and tax policy committee and the legislative finance committee with an analysis of the effectiveness and cost of the deduction and whether the deduction is performing the purpose for which it was created."

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

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