HB0291

HOUSE BILL 291

55th legislature - STATE OF NEW MEXICO - first session, 2021

INTRODUCED BY

Javier Martínez and Christine Chandler and Matthew McQueen

AN ACT

RELATING TO TAXATION; ADDING NEW BRACKETS TO THE INCOME TAX; INCREASING AND INDEXING THE LOW-INCOME COMPREHENSIVE TAX REBATE; INCREASING THE AMOUNT OF THE WORKING FAMILIES TAX CREDIT; EXPANDING THE CREDIT TO CERTAIN RESIDENTS WHO ARE INELIGIBLE FOR THE FEDERAL EARNED INCOME TAX CREDIT ON WHICH THE WORKING FAMILIES TAX CREDIT IS BASED; LIMITING THE CAPITAL GAINS DEDUCTION FROM NET INCOME FOR CERTAIN TAXPAYERS; ALLOWING A REGIONAL OPERATION TO ELECT TO INCREASE THE WEIGHTING OF THE SALES FACTOR WHEN APPORTIONING BUSINESS INCOME; LIMITING A THREE PERCENT LIMITATION ON INCREASES IN VALUATION OF RESIDENTIAL PROPERTY TO PROPERTY THAT IS OCCUPIED BY THE OWNER AS THE OWNER'S PRINCIPAL PLACE OF RESIDENCE; PROVIDING A TEN PERCENT LIMITATION ON INCREASES IN VALUATION OF RESIDENTIAL PROPERTY THAT IS NOT OCCUPIED BY THE OWNER AS THE OWNER'S PRINCIPAL PLACE OF RESIDENCE.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF NEW MEXICO:

SECTION 1. Section 7-2-7 NMSA 1978 (being Laws 2005, Chapter 104, Section 4, as amended) is amended to read:

"7-2-7. INDIVIDUAL INCOME TAX RATES.--The tax imposed by Section 7-2-3 NMSA 1978 shall be at the following rates for any taxable year beginning on or after January 1, [2021] 2022:

A. For married individuals filing separate returns:

If the taxable income is: The tax shall be:

Not over $4,000 1.7% of taxable income

Over $4,000 but not over $8,000 $68.00 plus 3.2% of excess over $4,000

Over $8,000 but not over $12,000 $196 plus 4.7% of excess over $8,000

Over $12,000 but not over $384 plus 4.9% of excess

[$157,500] $100,000 over $12,000

Over $100,000 but not over $157,500 $4,696 plus 5.5% of excess over $100,000

Over $157,500 but not over $311,000 [$7,513.50] $7,858.50 plus 5.9% of excess over $157,500

Over $311,000 $16,915 plus 6.5% of excess over $311,000.

B. For heads of household, surviving spouses and married individuals filing joint returns:

If the taxable income is: The tax shall be:

Not over $8,000 1.7% of taxable income

Over $8,000 but not over $16,000 $136 plus 3.2% of excess over $8,000

Over $16,000 but not over $24,000 $392 plus 4.7% of excess over $16,000

Over $24,000 but not over $768 plus 4.9% of excess

[$315,000] $200,000 over $24,000

Over $200,000 but not over $315,000 $9,392 plus 5.5% of excess over $200,000

Over $315,000 but not over $622,000 [$15,027] $15,717 plus 5.9% of excess over $315,000

Over $622,000 $33,830 plus 6.5% of excess over $622,000.

C. For single individuals and for estates and trusts:

If the taxable income is: The tax shall be:

Not over $5,500 1.7% of taxable income

Over $5,500 but not over $11,000 $93.50 plus 3.2% of excess over $5,500

Over $11,000 but not over $16,000 $269.50 plus 4.7% of excess over $11,000

Over $16,000 but not over $504.50 plus 4.9% of

[$210,000] $135,000 excess over $16,000

Over $135,000 but not over $210,000 $6,335.50 plus 5.5% of excess over $135,000

Over $210,000 but not over $415,000 [$10,010.50] $10,460.50 plus 5.9% of excess over $210,000

Over $415,000 $22,555.50 plus 6.5% of excess over $415,000.

D. The tax on the sum of any lump-sum amounts included in net income is an amount equal to five multiplied by the difference between:

(1) the amount of tax due on the taxpayer's taxable income; and

(2) the amount of tax that would be due on an amount equal to the taxpayer's taxable income and twenty percent of the taxpayer's lump-sum amounts included in net income."

SECTION 2. Section 7-2-14 NMSA 1978 (being Laws 1972, Chapter 20, Section 2, as amended) is amended to read:

"7-2-14. LOW-INCOME COMPREHENSIVE TAX REBATE.--

A. Except as otherwise provided in Subsection B of this section, any resident who files an individual New Mexico income tax return and who is not a dependent of another individual may claim a tax rebate for a portion of state and local taxes to which the resident has been subject during the taxable year for which the return is filed. The tax rebate may be claimed even though the resident has no income taxable under the Income Tax Act. [A husband and wife] Married individuals who file separate returns for a taxable year in which they could have filed a joint return may each claim only one-half of the tax rebate that would have been allowed on a joint return.

B. No claim for the tax rebate provided in this section shall be filed by a resident who was an inmate of a public institution for more than six months during the taxable year for which the tax rebate could be claimed or who was not physically present in New Mexico for at least six months during the taxable year for which the tax rebate could be claimed.

C. For the purposes of this section, the total number of exemptions for which a tax rebate may be claimed or allowed is determined by adding the number of federal exemptions allowable for federal income tax purposes for each individual included in the return who is domiciled in New Mexico plus two additional exemptions for each individual domiciled in New Mexico included in the return who is sixty-five years of age or older plus one additional exemption for each individual domiciled in New Mexico included in the return who, for federal income tax purposes, is blind plus one exemption for each minor child or stepchild of the resident who would be a dependent for federal income tax purposes if the public assistance contributing to the support of the child or stepchild was considered to have been contributed by the resident.

D. Except as provided in Subsection F of this section, the tax rebate provided for in this section may be claimed in the amount shown in the following table:

Modified gross And the total number

income is: of exemptions is:

But Not 6 or

Over Over 1 2 3 4 5 More

[$ 0 $ 500 $ 120 $ 160 $ 200 $ 240 $ 280 $ 320

500 1,000 135 195 250 310 350 415

1,000 1,500 135 195 250 310 350 435

1,500 2,000 135 195 250 310 350 450

2,000 2,500 135 195 250 310 350 450

2,500 3,000 135 195 250 310 350 450

3,000 3,500 135 195 250 310 350 450

3,500 4,000 135 195 250 310 355 450

4,000 4,500 135 195 250 310 355 450

4,500 5,000 125 190 240 305 355 450

5,000 5,500 115 175 230 295 355 430

5,500 6,000 105 155 210 260 315 410

6,000 7,000 90 130 170 220 275 370

7,000 8,000 80 115 145 180 225 295

8,000 9,000 70 105 135 170 195 240

9,000 10,000 65 95 115 145 175 205

10,000 11,000 60 80 100 130 155 185

11,000 12,000 55 70 90 110 135 160

12,000 13,000 50 65 85 100 115 140

13,000 14,000 50 65 85 100 115 140

14,000 15,000 45 60 75 90 105 120

15,000 16,000 40 55 70 85 95 110

16,000 17,000 35 50 65 80 85 105

17,000 18,000 30 45 60 70 80 95

18,000 19,000 25 35 50 60 70 80

19,000 20,000 20 30 40 50 60 65

20,000 21,000 15 25 30 40 50 55

21,000 22,000 10 20 25 35 40 45]

$ 0 $ 1,000 $ 195 $ 260 $ 325 $ 390 $ 455 $ 520

1,000 1,500 220 315 405 505 570 675

1,500 2,500 220 315 405 505 570 705

2,500 7,500 220 315 405 505 570 730

7,500 8,000 205 310 390 495 575 730

8,000 9,000 185 285 375 480 575 700

9,000 10,000 170 250 340 425 510 665

10,000 11,500 145 210 275 360 445 600

11,500 13,000 130 185 235 295 365 480

13,000 14,500 115 170 220 275 315 390

14,500 16,500 105 155 185 235 285 335

16,500 18,000 100 130 165 210 250 300

18,000 19,500 90 115 145 180 220 260

19,500 21,000 80 105 140 165 185 230

21,000 23,000 80 105 140 165 185 230

23,000 24,500 75 100 120 145 170 195

24,500 26,000 65 90 115 140 155 180

26,000 27,500 55 80 105 130 140 170

27,500 29,500 50 75 100 115 130 155

29,500 31,000 40 55 80 100 115 130

31,000 32,500 35 50 65 80 100 105

32,500 34,000 25 40 50 65 80 90

34,000 36,000 15 35 40 55 65 75.

E. If a taxpayer's modified gross income is zero, the taxpayer may claim a credit in the amount shown in the first row of the table appropriate for the taxpayer's number of exemptions as adjusted by the provisions of Subsection F of this section.

F. For the 2022 taxable year and each subsequent taxable year, the amount of rebate shown in the table in Subsection D of this section shall be adjusted to account for inflation. The department shall make the adjustment by multiplying each amount of rebate by a fraction, the numerator of which is the consumer price index ending during the prior taxable year and the denominator of which is the consumer price index ending in tax year 2021. The result of the multiplication shall be rounded down to the nearest one dollar ($1.00), except that if the result would be an amount less than the corresponding amount for the preceding taxable year, then no adjustment shall be made.

[F.] G. The tax rebates provided for in this section may be deducted from the taxpayer's New Mexico income tax liability for the taxable year. If the tax rebates exceed the taxpayer's income tax liability, the excess shall be refunded to the taxpayer.

[G.] H. For purposes of this section:

(1) "consumer price index" means the consumer price index for all urban consumers published by the United States department of labor for the month ending September 30; and

(2) "dependent" means "dependent" as defined by Section 152 of the Internal Revenue Code of 1986, as that section may be amended or renumbered, but also includes any minor child or stepchild of the resident who would be a dependent for federal income tax purposes if the public assistance contributing to the support of the child or stepchild was considered to have been contributed by the resident."

SECTION 3. Section 7-2-18.15 NMSA 1978 (being Laws 2007, Chapter 45, Section 9, as amended) is amended to read:

"7-2-18.15. WORKING FAMILIES TAX CREDIT.--

A. A taxpayer who is a resident and who files an individual New Mexico income tax return may claim a credit in an amount equal to [seventeen] twenty percent of the federal earned income tax credit for which that [individual] taxpayer is eligible for the same taxable year [pursuant to Section 32 of the Internal Revenue Code] or would have been eligible but for the identification number requirement pursuant to 26 U.S.C. 32(m), as that section may be amended or renumbered.

B. A taxpayer who is a resident and who files an individual New Mexico tax return may claim a credit in an amount equal to twenty percent of the federal earned income tax credit for which that taxpayer would have been eligible for the same taxable year but for the age requirement pursuant to 26 U.S.C. 32(c)(1)(A)(ii)(II), as that section may be amended or renumbered; provided that the taxpayer is at least eighteen years of age but has not reached the age of twenty-five.

C. The credit provided in this section may be referred to as the "working families tax credit".

[B.] D. The working families tax credit may be deducted from the income tax liability of an individual who claims the credit and qualifies for the credit pursuant to this section. If the credit exceeds the individual's income tax liability for the taxable year, the excess shall be refunded to the individual.

E. As used in this section, "federal earned income tax credit" means the tax credit allowed pursuant to 26 U.S.C. 32, as that section may be amended or renumbered."

SECTION 4. Section 7-2-34 NMSA 1978 (being Laws 1999, Chapter 205, Section 1, as amended) is amended to read:

"7-2-34. DEDUCTION--NET CAPITAL GAIN INCOME.--

A. Except as provided in [Subsection C] Subsections B and D of this section, a taxpayer may claim a deduction from net income in an amount equal to the taxpayer's net capital gain income for the taxable year for which the deduction is being claimed, but not to exceed one thousand dollars ($1,000).

B. Except as provided in Subsection D of this section, a taxpayer may claim a deduction from net income attributable to the sale of a New Mexico business in an amount equal to the greater of:

(1) the taxpayer's net capital gain income for the taxable year for which the deduction is being claimed, but not to exceed one thousand dollars ($1,000); or

(2) forty percent of the taxpayer's net capital gain income, up to five hundred thousand dollars ($500,000), for the taxable year for which the deduction is being claimed; provided that:

(a) the net capital gain from the sale does not exceed one million dollars ($1,000,000);

(b) the business was the principal business of the taxpayer; and

[B.] C. Married individuals who file separate returns for a taxable year in 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 allowed on the joint return.

[C.] D. A taxpayer may not claim the deduction provided in [Subsection A of] this section if the taxpayer has claimed the credit provided in Section 7-2D-8.1 NMSA 1978.

[D.] E. As used in this section:

(1) "net capital gain" means "net capital gain" as defined in Section 1222 (11) of the Internal Revenue Code; and

(2) "New Mexico business" means a business that is owned as follows:

(a) for a sole proprietorship, one hundred percent of the tangible assets of the business are owned or leased by a New Mexico resident;

(b) for a corporation or limited liability company, a business with its principal office and a majority of its full-time-equivalent employees located in New Mexico; and

(c) for a limited partnership, a business with its principal place of business and one hundred percent of its tangible assets located in New Mexico."

SECTION 5. 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 Subsections B, [and] C and E 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. If eighty percent or more of the New Mexico numerators of the property and payroll factors for a filing group, or for a taxpayer that is not a member of a filing group, are employed in manufacturing or operating a computer processing facility, the filing group or the taxpayer may elect to have business income apportioned to this state by multiplying the income by the sales factor for the taxable year.

C. If a filing group, or a taxpayer that is not a member of a filing group, has a headquarters operation in New Mexico, the filing group or the taxpayer may elect to have business income apportioned to this state by multiplying the income by the sales factor for the taxable year.

D. Except as provided in Subsection E of this section, to elect the method of apportionment provided by Subsection B or C 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 as follows:

(1) if the election is made for taxable years beginning prior to January 1, 2020, to the taxable year in which the election is made and to each taxable year thereafter for three years, or until the taxable year ending prior to January 1, 2020, whichever is earlier;

(2) if the election is made for a taxable year beginning on or after January 1, 2020, to the taxable year in which the election is made 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 Subsection B or C 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; and

(3) if the election is made by a qualifying filing group, the election shall apply to the members of the filing group properly included pursuant to Section 7-2A-8.3 NMSA 1978.

E. A taxpayer that is a regional operation may elect to increase the weighting of the sales factor as follows, after notifying 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:

(1) for taxable years beginning on or after January 1, 2021 and prior to January 1, 2022, by using a sales factor multiplied by two plus the property factor plus the payroll factor divided by four;

(2) for taxable years beginning on or after January 1, 2022 and prior to January 1, 2023, by using a sales factor multiplied by six plus the property factor plus the payroll factor divided by eight; and

(3) for taxable years beginning on or after January 1, 2023, by multiplying the income by the sales factor for the taxable year, the numerator of which is total sales in New Mexico and the denominator of which is total sales everywhere during the tax period.

F. An election made pursuant to Subsection E of this section shall apply to the taxable year in which the election is made 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 E 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; and provided further that, if the election is made by a qualifying filing group, the election shall apply to the members of the filing group properly included pursuant to Section 7-2A-8.3 NMSA 1978.

[E.] G. For purposes of this section:

(1) "filing group" means "filing group" as that term is defined in the Corporate Income and Franchise Tax Act;

(2) "headquarters operation" means:

(a) the center of operations of a business: 1) where corporate staff employees are physically employed; 2) where the centralized functions are primarily performed, including administrative, planning, managerial, human resources, purchasing, information technology and accounting, but not including operating a call center; 3) the function and purpose of which is to manage and direct most aspects and functions of the business operations within a subdivided area of the United States; 4) from which final authority over regional or subregional offices, operating facilities and any other offices of the business are issued; and 5) including national and regional headquarters if the national headquarters is subordinate only to the ownership of the business or its representatives and the regional headquarters is subordinate to the national headquarters; or

(b) the center of operations of a business: 1) the function and purpose of which is to manage and direct most aspects of one or more centralized functions; and 2) from which final authority over one or more centralized functions is issued;

(3) "manufacturing" means combining or processing components or materials to increase their value for sale in the ordinary course of business, but does not include:

(a) construction;

(b) farming;

(c) power generation; provided that for taxable years beginning prior to January 1, 2024, "manufacturing" includes electricity generation at a facility that does not require location approval and a certificate of convenience and necessity prior to commencing construction or operation of the facility pursuant to the Public Utility Act;

(d) processing natural resources, including hydrocarbons; or

(e) processing or preparation of meals for immediate consumption; [and]

(4) "operating a computer processing facility" means managing the necessary and ancillary activities for the operation of a facility primarily used to process data or information, but does not include managing the operation of facilities that are predominantly used to support sales of tangible property or the provision of banking, financial or professional services; and

(5) "regional operation" means the presence of a business unit of a corporation or a group of corporations in a combined filing group:

(a) the purpose of which is to manage aspects and functions of the business operations, located fully or partially within New Mexico, and for which daily operational decisions are managed and carried out in New Mexico;

(b) with one hundred or more employees for whom wages are withheld pursuant to the Withholding Tax Act. The employee measurement date is the first day of the taxable year immediately prior to the taxable year for which the election is made, and shall be certified by audit; and

(c) with a cumulative investment in property in New Mexico exceeding five hundred million dollars ($500,000,000). Property owned by the taxpayer shall be valued at the property's original cost, which shall be deemed to be the basis of the property for federal income tax purposes, prior to any federal adjustments, at the time of acquisition by the taxpayer and adjusted by subsequent capital additions or improvements thereto and partial disposition thereof, by reason of sale, exchange or abandonment. For purposes of this subparagraph, "cumulative investment in property in New Mexico" means the average value of the taxpayer's real and tangible personal property owned or rented and used in New Mexico during the tax period."

SECTION 6. Section 7-36-21.2 NMSA 1978 (being Laws 2000, Chapter 10, Section 2, as amended) is amended to read:

"7-36-21.2. LIMITATION ON INCREASES IN VALUATION OF RESIDENTIAL PROPERTY.--

A. Except as provided in Subsections B through D of this section, residential property shall be valued at its current and correct value in accordance with the provisions of the Property Tax Code. [provided that]

B. For the 2001 [and subsequent] through 2022 tax years, the value of a property in any tax year shall not exceed the higher of one hundred three percent of the value in the tax year prior to the tax year in which the property is being valued or one hundred six and one-tenth percent of the value in the tax year two years prior to the tax year in which the property is being valued. [This limitation]

C. For the 2023 and subsequent tax years, the value of a residential property that is occupied by the owner as the owner's principal place of residence in any tax year shall not exceed the higher of one hundred three percent of the value in the tax year prior to the tax year in which the property is being valued or one hundred six and one-tenth percent of the value in the tax year two years prior to the tax year in which the property is being valued.

D. For the 2023 and subsequent tax years, the value of a residential property that is not occupied by the owner as the owner's principal place of residence in any tax year shall not exceed the higher of one hundred ten percent of the value in the tax year prior to the tax year in which the property is being valued or one hundred twenty-one percent of the value in the tax year two years prior to the tax year in which the property is being valued.

E. The limitations on increases in value [does] pursuant to Subsections B through D of this section shall not apply to:

(1) a residential property in the first tax year that it is valued for property taxation purposes;

(2) any physical improvements, except for solar energy system installations, made to the property during the year immediately prior to the tax year or omitted in a prior tax year; or

(3) valuation of a residential property in any tax year in which:

(a) a change of ownership of the property occurred in the year immediately prior to the tax year for which the value of the property for property taxation purposes is being determined; or

(b) the use or zoning of the property has changed in the year prior to the tax year.

[B.] F. If a change of ownership of residential property occurred in the year immediately prior to the tax year for which the value of the property for property taxation purposes is being determined, the value of the property shall be its current and correct value as determined pursuant to the general valuation provisions of the Property Tax Code.

[C.] G. To assure that the values of residential property for property taxation purposes are at current and correct values in all counties prior to application of the limitation in Subsection [A] B of this section, the department shall determine for the 2000 tax year the sales ratio pursuant to Section 7-36-18 NMSA 1978 or, if a sales ratio cannot be determined pursuant to that section, conduct a sales-ratio analysis using both independent appraisals by the department and sales. If the sales ratio for a county for the 2000 tax year is less than eighty-five, as measured by the median ratio of value for property taxation purposes to sales price or independent appraisal by the department, the county shall not be subject to the limitations of Subsection [A] B of this section and shall conduct a reassessment of residential property in the county so that, by the 2003 tax year, the sales ratio is at least eighty-five. After such reassessment, the limitation on increases in valuation in this section shall apply in those counties in the earlier of the 2004 tax year or the first tax year following the tax year that the county has a sales ratio of eighty-five or higher, as measured by the median ratio of value for property taxation purposes to sales value or independent appraisal by the department. Thereafter, the limitation on increases in valuation of residential property for property taxation purposes in this section shall apply to subsequent tax years in all counties.

[D.] H. The provisions of this section do not apply to residential property for any tax year in which the property is subject to the valuation limitation in Section 7-36-21.3 NMSA 1978.

[E.] I. As used in this section:

(1) "change of ownership" means a transfer to a transferee by a transferor of all or any part of the transferor's legal or equitable ownership interest in residential property except for a transfer:

[(1)] (a) to a trustee for the beneficial use of the spouse of the transferor or the surviving spouse of a deceased transferor;

[(2)] (b) to the spouse of the transferor that takes effect upon the death of the transferor;

[(3)] (c) that creates, transfers or terminates, solely between spouses, any co-owner's interest;

[(4)] (d) to a child of the transferor, who occupies the property as that person's principal residence at the time of transfer; provided that the first subsequent tax year in which that person does not qualify for the head of household exemption on that property, a change of ownership shall be deemed to have occurred;

[(5)] (e) that confirms or corrects a previous transfer made by a document that was recorded in the real estate records of the county in which the real property is located;

[(6)] (f) for the purpose of quieting the title to real property or resolving a disputed location of a real property boundary;

[(7)] (g) to a revocable trust by the transferor with the transferor, the transferor's spouse or a child of the transferor as beneficiary; or

[(8)] (h) from a revocable trust described in [Paragraph (7) of this subsection] Subparagraph (g) of this paragraph back to the settlor or trustor or to the beneficiaries of the trust; and

[F. As used in this section]

(2) "solar energy system installation" means an installation that is used to provide space heat, hot water or electricity to the property in which it is installed and is:

[(1)] (a) an installation that uses solar panels that are not also windows;

[(2)] (b) a dark-colored water tank exposed to sunlight; or

[(3)] (c) a non-vented trombe wall."

SECTION 7. APPLICABILITY.--

A. The provisions of Sections 2 and 3 of this act apply to taxable years beginning on or after January 1, 2021.

B. The provisions of Section 4 of this act apply to taxable years beginning on or after January 1, 2022.

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