SENATE BILL 335
54th legislature - STATE OF NEW MEXICO - first session, 2019
INTRODUCED BY
Peter Wirth and Melanie A. Stansbury
AN ACT
RELATING TO TAXATION; REQUIRING COMBINED REPORTING FOR A UNITARY GROUP; CHANGING REQUIREMENTS FOR CORPORATIONS TO FILE A CONSOLIDATED RETURN; ADDING AND AMENDING DEFINITIONS IN THE CORPORATE INCOME AND FRANCHISE TAX ACT; AMENDING THE UNIFORM DIVISION OF INCOME TAX FOR TAX PURPOSES ACT TO DETERMINE IN-STATE SALES OF INTANGIBLES AND SERVICES; REQUIRING THE TAXATION AND REVENUE DEPARTMENT TO PROMULGATE RULES; AMENDING AND REPEALING SECTIONS OF THE CORPORATE INCOME AND FRANCHISE TAX ACT.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF NEW MEXICO:
SECTION 1. 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.] A. "bank" means any national bank, national banking association, state bank or bank holding company;
B. "apportioned net income" or "apportioned net loss" means net income or loss allocated and apportioned to New Mexico pursuant to the provisions of the Corporate Income and Franchise Tax Act or the Uniform Division of Income for Tax Purposes Act, but excluding from the sales factor any sales that represent intercompany transactions between members of the filing group;
C. "base income or loss" 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:
(1) 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;
(2) interest received on a state or local bond; and
(3) the amount of any deduction claimed in calculating taxable income for all expenses and costs directly or indirectly paid, accrued or incurred to a captive real estate investment trust] the federal taxable income or the federal net operating loss of a corporation for the taxable year calculated pursuant to the Internal Revenue Code, after special deductions but without any deduction for net operating losses, as if the corporation filed a federal tax return as a separate domestic entity, modified as follows:
(1) adding to that income or loss:
(a) interest received on a state or local bond exempt under the Internal Revenue Code;
(b) the amount of any deduction claimed in calculating taxable income for all expenses and costs directly or indirectly paid, accrued or incurred to a captive real estate investment trust; and
(c) the amount of any deduction, other than for premiums, for amounts paid directly or indirectly to a commonly controlled entity that is exempt from corporate income tax pursuant to Section 7-2A-4 NMSA 1978;
(2) subtracting from that income or loss:
(a) income from obligations of the United States net of expenses incurred to earn that income; and
(b) other amounts that the state is prohibited from taxing because of the laws or constitution of this state or the United States net of any related expenses; and
(3) making other adjustments deemed necessary to properly reflect income of the unitary business, including attribution of income or expense related to unitary assets held by related corporations that are not part of the filing group;
D. "captive real estate investment trust" means a corporation, trust or association taxed as a real estate investment trust pursuant to Section 857 of the Internal Revenue Code, the shares or beneficial interests of which are not regularly traded on an established securities market; provided that more than fifty percent of any class of beneficial interests or shares of the real estate investment trust are owned directly, indirectly or constructively by the taxpayer during all or a part of the taxpayer's taxable year;
E. "common ownership" means the direct or indirect control or ownership of more than fifty percent of the outstanding voting stock, ownership of which shall be determined pursuant to Section 1563 of the Internal Revenue Code, as that section may be amended or renumbered, of:
(1) a parent-subsidiary controlled group as defined in Section 1563 of the Internal Revenue Code, except that fifty percent shall be substituted for eighty percent;
(2) a brother-sister controlled group as defined in Section 1563 of the Internal Revenue Code; or
(3) three or more corporations each of which is a member of a group of corporations described in Paragraph (1) or (2) of this subsection, and one of which is:
(a) a common parent corporation included in a group of corporations described in Paragraph (1) of this subsection; and
(b) included in a group of corporations described in Paragraph (2) of this subsection;
F. "consolidated group" means the group of entities properly filing a federal consolidated return under the Internal Revenue Code for the taxable year;
[E.] G. "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;
[F.] H. "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;
I. "filing group" means the group of corporations properly included in the return for a taxpayer for a particular taxable year;
[G.] J. "fiscal year" means any accounting period of twelve months ending on the last day of any month other than December;
K. "grandfathered net operating loss carryover" means:
(1) the amount of net loss properly reported to New Mexico in taxable years beginning January 1, 2014 and prior to January 1, 2020 as part of a timely filed original return, to the extent such loss can be attributed to one or more corporations that are properly included in the taxpayer's return for the first taxable year beginning on or after January 1, 2020;
(2) reduced by:
(a) adding back deductions that were taken by the corporation or corporations for royalties or interest paid to one or more related corporations, but only to the extent that such adjustment would not create a net loss for such related corporations; and
(b) the amount of net operating loss deductions taken prior to January 1, 2020, that would be charged against those losses consistent with the Internal Revenue Code and provisions of the Corporate Income and Franchise Tax Act applicable to the year of the deduction; and
(3) apportioned to New Mexico using the apportionment factors that can properly be attributed to the corporation or corporations for the year of the net loss;
[H.] L. "Internal Revenue Code" means the United States Internal Revenue Code of 1986, as amended;
[I.] M. "net income or loss" 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;
(4) for taxable years beginning on or after January 1, 1991 and prior to January 1, 2013, 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 and prior to January 1, 2013 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 for any net operating loss carryover from a taxable year prior to January 1, 2013; in no event may a net operating loss carryover from a taxable year beginning prior to January 1, 2013 be excluded in any taxable year after the fourth taxable year beginning after the taxable year to which the exclusion first applies; and
(5) for taxable years beginning on or after January 1, 2013, 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 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 nineteen succeeding taxable years in turn until the net operating loss carryover is exhausted for any net operating loss carryover from a taxable year beginning on or after January 1, 2013; in no event shall a net operating loss carryover from a taxable year beginning: 1) prior to January 1, 2013 be excluded in any taxable year after the fourth taxable year beginning after the taxable year to which the exclusion first applies; and 2) on or after January 1, 2013 be excluded in any taxable year after the nineteenth taxable year beginning after the taxable year to which the exclusion first applies;
J. "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;]
(1) the base income or loss of a corporation properly filing a tax return as a separate entity; or
(2) the combined base income and losses of corporations that are part of a filing group that is computed after eliminating intercompany income and expense in a manner consistent with the consolidated filing requirements of the Internal Revenue Code and the Corporate Income and Franchise Tax Act;
[K.] N. "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), (4) or (5) of Subsection I of this section, may be excluded from base income] the apportioned net loss properly reported on an original or amended tax return for taxable years beginning on or after January 1, 2020 by the taxpayer:
(1) plus:
(a) the portion of an apportioned net loss properly reported to New Mexico for a taxable year beginning on or after January 1, 2020, on a separate year return, to the extent the taxpayer would have been entitled to include the portion of such apportioned net loss in the taxpayer's consolidated net operating loss carryforward under the Internal Revenue Code if the taxpayer filed a consolidated federal return; and
(b) the taxpayer's grandfathered net operating loss carryover; and
(2) minus:
(a) the amount of the net operating loss carryover attributed to an entity that has left the filing group, computed in a manner consistent with the consolidated filing requirements of the Internal Revenue Code and applicable regulations, as if the taxpayer were filing a consolidated return; and
(b) the amount of net operating loss deductions properly taken by the taxpayer;
O. "net operating loss deduction" means the portion of the net operating loss carryover that may be deducted from the taxpayer's apportioned net income or loss under the Internal Revenue Code for the taxable year in which the deduction is taken, including the eighty percent limitation of Section 172(a) of the Internal Revenue Code calculated on the basis of the taxpayer's apportioned net income or loss;
[L.] P. "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;
[M.] Q. "real estate investment trust" has the meaning ascribed to the term in Section 856 of the Internal Revenue Code, as that section may be amended or renumbered;
R. "related corporation" means a corporation that is under common ownership with one or more corporations but that is not included in the same tax return;
S. "return" means any tax or information return, including a water's-edge or worldwide combined return, a consolidated return, a declaration of estimated tax or a claim for refund, including any amendments or supplements to the return, required or permitted pursuant to a law subject to administration and enforcement pursuant to the Tax Administration Act and filed with the department by or on behalf of any person;
[N.] T. "secretary" means the secretary of taxation and revenue or the secretary's delegate;
U. "separate year return" means a properly filed original or amended return for a taxable year beginning on or after January 1, 2020 by a taxpayer reporting a loss, a portion of which is claimed as part of the net operating loss carryover by another taxpayer in a subsequent return period;
[O.] 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 political subdivision thereof or any political subdivision of a foreign country;
[P.] 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;
X. "taxable income" means a taxpayer's apportioned net income minus the net operating loss deduction for the taxable year;
[Q.] Y. "taxable year" means the calendar year or fiscal year upon the basis of which the net income or loss 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;
[R.] Z. "taxpayer" means any corporation subject to the taxes imposed by the Corporate Income and Franchise Tax Act; [and
S.] AA. "unitary [corporations] group" 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] a group of two or more corporations, including a captive real estate investment trust, but not including an S corporation, an insurance company subject to the provisions of the New Mexico Insurance Code, an insurance company that would be subject to the New Mexico Insurance Code if the insurance company engaged in business in this state or a real estate investment trust that is not a captive real estate investment trust, that are related through common ownership;
BB. "water's-edge group" means all corporations that are part of a unitary group, except:
(1) corporations that are exempt from corporate income tax pursuant to Section 7-2A-4 NMSA 1978; and
(2) corporations wherever organized or incorporated that have less than twenty percent of their property, payroll and sales sourced to locations within the United States, following the sourcing rules of the Uniform Division of Income for Tax Purposes Act; and
CC. "worldwide combined group" means all members of a unitary group, except members that are exempt from corporate income tax pursuant to Section 7-2A-4 NMSA 1978, irrespective of the country in which the corporations are incorporated or conduct business activity."
SECTION 2. Section 7-2A-3 NMSA 1978 (being Laws 1981, Chapter 37, Section 36, as amended) is amended to read:
"7-2A-3. IMPOSITION AND LEVY OF TAXES.--
A. A tax to be known as the "corporate income tax" is imposed at the rate specified in the Corporate Income and Franchise Tax Act upon the [net] taxable income of [every domestic corporation and upon the net income of every foreign corporation employed or] a corporation or group of corporations, in whatever jurisdiction organized or incorporated, that is engaged in the transaction of business in, into or from this state or deriving any income from any property or employment within this state.
B. A tax to be known as the "corporate franchise tax" is imposed in the amount specified in the Corporate Income and Franchise Tax Act upon every domestic corporation and upon every foreign corporation employed or engaged in the transaction of business in, into or from this state or deriving any income from any property or employment within this state and upon every domestic or foreign corporation, whether engaged in active business or not, but having or exercising its corporate franchise in this state."
SECTION 3. Section 7-2A-8.3 NMSA 1978 (being Laws 1983, Chapter 213, Section 12, as amended) is amended to read:
"7-2A-8.3. COMBINED AND CONSOLIDATED 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 for taxable years beginning on or after January 1, 2014, 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.
D. Notwithstanding Subsection A of this section, a unitary corporation shall not be required to file a combined return pursuant to this section if that unitary corporation:
(1) has operations in New Mexico at facilities that do not provide retail sales of goods; and
(2) employs at least seven hundred fifty employees in New Mexico at such facilities.] Corporations that are part of a unitary group shall file a return properly reporting and paying tax on taxable income as a worldwide combined group unless they properly elect to report and pay tax on taxable income as a water's-edge or consolidated group, pursuant to department rules and instructions, on the first original return required to be filed on or after January 1, 2020. Corporations electing to file a consolidated return must file on that same basis for federal income tax purposes. Once a unitary or consolidated group has properly made an election to file as a water's-edge or consolidated group, neither the group nor any of the group's members may file a return on any other basis without permission of the secretary. Corporations that are part of a unitary group filing a group return are jointly and severally liable for the tax imposed pursuant to the Corporate Income and Franchise Tax Act on taxable income."
SECTION 4. Section 7-4-18 NMSA 1978 (being Laws 1965, Chapter 203, Section 18) is amended to read:
"7-4-18. DETERMINATION OF SALES IN THIS STATE OF SERVICES AND OTHER [THAN TANGIBLE PERSONAL] PROPERTY FOR INCLUSION IN SALES FACTOR.--
A. Sales, other than sales [of tangible personal property] described in Section 7-4-17 NMSA 1978, are in this state: [if
A. the income-producing activity is performed in this state; or
B. the income-producing activity is performed both in and outside this state and a greater proportion of the income-producing activity is performed in this state than in any other state based on costs of performance]
(1) in the case of sale, rental, lease or license of real property, if and to the extent the real property is located in this state;
(2) in the case of rental, lease or license of tangible personal property, if and to the extent the tangible personal property is located in this state;
(3) in the case of sale of a service, if and to the extent the service is delivered to a location in this state; and
(4) in the case of sale, rental, lease or license of intangible property, if and to the extent the intangible property is used in this state.
B. If the state or states of assignment under Subsection A of this section cannot be determined, the state or states of assignment shall be reasonably approximated.
C. If the taxpayer is not taxable in a state to which a sale is assigned pursuant to Subsection A of this section or if the state of assignment cannot be determined or reasonably approximated pursuant to Subsection B of this section, that sale shall be excluded from the numerator and denominator of the sales factor.
D. The department may promulgate rules as necessary or appropriate to carry out the purposes of this section."
SECTION 5. TEMPORARY PROVISION--PROMULGATION OF RULES.--Prior to January 1, 2020, the secretary of taxation and revenue shall promulgate rules to administer the provisions of this 2019 act.
SECTION 6. REPEAL.--Sections 7-2A-8 and 7-2A-8.4 NMSA 1978 (being Laws 1981, Chapter 37, Section 41 and Laws 1983, Chapter 213, Section 13, as amended) are repealed.
SECTION 7. APPLICABILITY.--The provisions of this act apply to taxable years beginning on or after January 1, 2020.
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