2-08-2024 10:08am

New Mexico Bill Would Lower State Income Taxes HB252

New Mexico HB 252 Cuts Taxes Townsend proposed 1% Flat Income Tax defeated (AlamogordoTownNews.com)

New Mexico house bill 252 and amended would reduce personal income taxes across a wide range of earnings thresholds and collect more taxes on investment income passed the Democratic controlled New Mexico state House on Wednesday 2-7-24.

The broad package of tax changes won House endorsement on a 48-21 vote and now moves to the Senate for consideration. House Republicans led by state Rep. Jim Townsend, of Artesia, unsuccessfully proposed more aggressive tax cuts in light of an estimated $3.5 billion general fund surplus for the coming fiscal year. In a failed amendment, he suggested a flat 1% tax on personal income. The current rates range from 1.7% on taxable income under $4,000 for individuals to 5.9% on annual income over $157,000.

State government would forgo about $105 million annually overall through adjustments to personal income tax rates and brackets while collecting more taxes on investment income.

All income taxpayers would see a decrease, with the greatest savings in dollar terms among middle-income earners, according to an analysis by the state Taxation and Revenue Department.

Annual income tax would decrease by $16, or 12%, to $136 for a couple with taxable income of $8,000, the agency said. A wealthier couple with an annual taxable income of $400,000 would save about $553, or 2.8%, on annual taxes of $20,042.

The bill from Democratic state Rep. Derrick Lente, of Sandia Pueblo, also includes tax credits and deductions aimed at shoring up the medical workforce in remote rural areas and easing the fiscal burden on childcare and preschool providers.

He said in a statement that the bill aims to "improve access to healthcare and childcare, support clean energy, and provide support for our friends and neighbors who need it most."

Details of the legislation include:

Sections 1 through 4 and 13: IRBs and Energy Storage Tax Deduction. This section adds energy storage facilities to the authority granted municipalities and counties for negotiating an industrial revenue bond (IRB). This parallels the authority granted these jurisdictions to negotiate an IRB for solar and wind production projects and for renewable energy transmission facilities.

The section also provides a gross receipts tax deduction for sales of energy storage equipment to
governments. There is a sunset of July 1, 2044, for the GRT deductions in the bill, both for this new deduction and the existing deductions for solar and wind equipment. The effective date of this bill is July 1, 2024.

Section 5: Personal Income Tax Brackets. This section restructures the personal income tax rates and income brackets to increase the number of brackets, adjust the rates, and change the income range within each bracket.

Section 6: Angel Investment Tax Credit. This section allows a taxpayer to claim the angel investment credit for a qualified investment made after January 1, 2024, and before December 31, 2030, extending the period for five years beyond the current expiration of December 31, 2025. This bill does not contain an effective date and, as a result, would go into effect 90 days after the Legislature adjourns, or May 15, 2024, if enacted.

Section 7: Rural Healthcare Practitioner Tax Credit. This section amends the rural healthcare practitioner tax credit against income tax to add several categories of health workers to the list of approved practitioners eligible to receive the credit. This section adds pharmacists, registered nurses, clinical social workers, independent social workers, professional mental health counselors, professional clinical mental health counselors, marriage and family therapists, professional art therapists, alcohol and drug abuse counselors, and physical therapists to be eligible for a $3,000 annual credit. This section also reduces the number of hours that a practitioner is required to provide service in a rural area to be eligible for the rural health care practitioner tax credit. The bill also amends the definition of “rural” for the rural health care practitioner credit, tying it to U.S. Department of Health and Human Services definitions instead of as identified by the New Mexico Department of Health. This section does not contain an effective date, and as a result, would go into effect May 15, 2024, (90 days after the Legislature adjourns) if signed. The provisions in this bill apply to taxable years beginning on or after January 1, 2024.

Section 8: Capital Gains Deduction. This section seeks to amend the limit of capital gains that may be deducted from personal income tax. The current limit is the greater of $1,000 or 40 percent of the taxpayer’s net capital gain income. This bill changes the maximum a taxpayer may claim to $2,500. This bill allows a deduction of 40 percent of up to $1 million of capital gain income from a sale of a New Mexico business. This section goes into effect January 1, 2025, and applies to taxable years beginning on or after January 1, 2025.

Section 9: Fire Recovery Tax Credit. Establishes an income tax credit for taxpayers whose homes were destroyed in a wildfire between 2021 and 2023. The tax credit is equal to the full amount of the construction costs of qualified, permanently constructed homes up to $50 thousand per home and can be used against taxpayer’s tax liability for up to three years. Qualified site-built homes are defined to be those constructed on the same property as the destroyed home less any compensation received pursuant to the federal Hermit’s Peak/Calf Canyon Fire Assistance Act, though application for those funds is not required to receive state assistance.

The construction industry division would promulgate rules and forms to quality people for the tax credit. The credit is applicable beginning in tax year 2024.

Section 10: Corporate Income Tax Rate. This section creates a single corporate income tax rate of 5.9 percent replacing the two-tiered marginal rate structure of 4.8 percent for taxable income under $500 thousand and 5.9 percent for taxable income of $500 thousand or more. The effective date of this bill is January 1, 2025. The provisions in this bill apply to taxable years beginning on or after January 1, 2025.

Section 11, 12 and 16: Apportionment of Business Income (Single-Sales Factor). This section requires all business income to be apportioned by a single sales factor, which is the ratio of sales in New Mexico divided by total sales in all states. Currently, the state employs a three-factor formula apportionment of multi-state income that considers property and payroll in addition to sales. The effective date of this section is January 1, 2025.

Section 14: Medicaid Home Modification GRT Deduction. This section provides a gross receipts tax deduction on home renovations like ramps and in-shower bars for those on
Medicaid. The modification, including purchase and installation, must be necessary to ensure the health, welfare, and safety of the recipient, or to enhance the recipient’s access to their home environment, including to increase the recipient’s ability to act independently. The effective date of this section is July 1, 2024, and sunsets for modifications installed after July 1, 2034.

Section 15: Childcare Provider GRT Deduction. This section creates a new gross receipt tax (GRT) deduction for the sale of childcare assistance through either a licensed childcare assistance program or a for-profit prekindergarten provider. For licensed childcare assistance services, the provider’s receipts must be pursuant to a contract or grant with the Early Childhood Education and Care Department and through a licensed childcare assistance program. For a for profit prekindergarten provider, the services must be pursuant to the Pre-kindergarten Act. The effective date of this section is July 1, 2024.

The bill now goes to the senate for consideration and is expected to pass.

Source: New Mexico Legislature, On site with Mica Maynard