CORPORATE INCOME TAX CHANGES, the official text

SENATE BILL 151

57th legislature - STATE OF NEW MEXICO - second session, 2026

INTRODUCED BY

Peter Wirth and Cristina Parajón and Heather Berghmans

and Natalie Figueroa

AN ACT

RELATING TO TAXATION; DECOUPLING FROM CERTAIN PROVISIONS OF
FEDERAL LAW RELATING TO CORPORATE INCOME TAX BY AMENDING THE
DEFINITION OF "BASE INCOME" IN THE CORPORATE INCOME AND
FRANCHISE TAX ACT TO CONFORM TO THE FEDERAL INCLUSION OF
CERTAIN INCOME OF CONTROLLED FOREIGN CORPORATIONS AND
SUBTRACTING AMOUNTS DEDUCTED FOR BONUS DEPRECIATION AND
INTEREST EXPENSES; PROVIDING THAT APPORTIONMENT RULES APPLY TO
ATTRIBUTED INCOME FROM A CONTROLLED FOREIGN CORPORATION.

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. "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 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" means 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 provided in Sections 241 through 249
of the Internal Revenue Code 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:

(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;

(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; and

(d) for taxable years beginning on or
after January 1, 2023, an amount equal to the amount of credit
claimed and allowed for that year pursuant to Section 7-3A-10
NMSA 1978 with respect to the distributed net income of a pass-through entity;

(2) subtracting from that income:

(a) income from obligations of the
United States net of expenses incurred to earn that income;

(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

(c) an amount equal to one hundred
percent of the income of the corporation under Section 951A of
the Internal Revenue Code, less the amount deducted pursuant to
Section 250 of the Internal Revenue Code;]

(c) the amount of any deduction taken
pursuant to Sections 168(k) and 168(n) of the Internal Revenue
Code in excess of the deduction amount that would have been
allowed by Sections 168(a) through 168(j) of the Internal
Revenue Code; and

(d) the amount of additional interest
deducted as a result of the changes to Subparagraph (A) of
Section 163(j)(8) of the Internal Revenue Code made by Section
70303 of Public Law 119–21; provided that such interest shall
be eligible for the carryforward provisions of Section
163(j)(2) of the Internal Revenue Code;

(3) making other adjustments deemed necessary
to properly reflect income of the unitary group, including
attribution of income or expense related to unitary assets held
by related corporations that are not part of the filing group;
and

(4) for a taxpayer that conducts a lawful
business pursuant to the laws of this state, excludes an amount
equal to any expenditure that is eligible to be claimed as a
federal income tax deduction but is disallowed pursuant to
Section 280E of the Internal Revenue Code, as that section may
be amended or renumbered;

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 is 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;

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;

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 a group of corporations
properly included in a return pursuant to Section 7-2A-8.3 NMSA
1978 for a particular taxable year;

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 for taxable years beginning January 1, 2013 and
prior to January 1, 2020 as part of a timely filed original
return, or an amended return for those taxable years filed
prior to January 1, 2020, 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;

L. "Internal Revenue Code" means the United States
Internal Revenue Code of 1986, as amended;

M. "net income" means:

(1) the base income 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;

N. "net operating loss carryover" means 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 under the Internal
Revenue Code as of January 1, 2018 for the taxable year in
which the deduction is taken, including the eighty percent
limitation of Section 172(a) of the Internal Revenue Code as of
January 1, 2018 calculated on the basis of the taxpayer's
apportioned net income;

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;

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;

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;

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;

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;

Y. "taxable year" means the calendar year or fiscal
year upon the basis of which the net income 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;

Z. "taxpayer" means any corporation or group of
corporations filing a return pursuant to Section 7-2A-8.3 NMSA
1978 subject to the taxes imposed by the Corporate Income and
Franchise Tax Act;

AA. "unitary group" means 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:

(1) related through common ownership; and

(2) economically interdependent with one
another as demonstrated by the following factors:

(a) centralized management;

(b) functional integration; and

(c) economies of scale;

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 organized or incorporated
outside the United States or its possessions or territories
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 7-4-10 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 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. The
apportionment calculation shall include the factors of a
controlled foreign corporation to the extent the income of the
corporation is included in net income.

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. 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. For purposes of this section:

(1) "controlled foreign corporation" means a
foreign corporation as defined by Section 957 of the Internal
Revenue Code of 1986, as that section may be amended or
renumbered;

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

[(2)] (3) "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)] (4) "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
"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)] (5) "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."

SECTION 3. APPLICABILITY.--The provisions of this act
apply to taxable years beginning on or after January 1, 2027.

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