New Mexico R&D Tax Credit Summary

Transition of the Research and Development Small Business Tax Credit Effective January 1, 2015, the Technology Jobs Tax Credit Act is revised to add an incentive for research and development small businesses, and as of January 1, 2016, will be known as the Technology Jobs and R&D Tax Credit Act.

The new legislation allows research and development small businesses to obtain the new "Technology Jobs and R&D Tax Credit" for qualified expenditures made after January 1, 2015 for conducting qualified research at a "Qualified Facility" and making "Qualified Expenditures." 

Qualified Facility – means a factory, mill, plant, refinery, warehouse, dairy, feedlot, building or complex of buildings located in New Mexico at which qualified research is conducted.

  • These include the land on which the facility is located and all machinery, equipment and other real and tangible personal property located at or within the facility and used in connection with the operation of the facility.

  • Any facility operated by the taxpayer for the United States is excluded.

Qualified Expenditures – means any expenditure or allocated portion of an expenditure connected to qualified research at a qualified facility. Such expenditures include:

  • Depletable land and rent paid or incurred for land Improvements

  • Allowable amounts paid or incurred to operate or maintain a facility

  • Buildings

  • Equipment

  • Computer software

  • Computer software upgrades

  • Consultants and contractors performing work in New Mexico

  • Payroll

  • Technical books and manuals

  • Test materials

Qualified expenditures EXCLUDE any expenditure:

  • On property owned by a municipality or county in connection with an industrial revenue bond project,

  • On property for which the taxpayer has received any credit under the Investment Credit Act,

  • On property owned by the taxpayer or affiliate before July 3, 2000, or

  • On research and development expenditures reimbursed by a person who is not an affiliate of the taxpayer. If an allocation of expenditure is claimed, the cost accounting methodology used for the allocation of the expenditure shall be the same cost accounting methodology used by the taxpayer in its other business activities.

For report periods between January 1, 2015, and June 30, 2015, a taxpayer who becomes eligible for a "R&D Small Business Tax Credit" can choose to either claim "R&D Small Business Tax Credit" or "Technology Jobs and R&D Tax Credit." Effective January 1, 2015, the Technology Jobs Tax Credit Act is revised to add an incentive for R&D small businesses, and as of January 1, 2016, will be known as the Technology Jobs and R&D Tax Credit Act.

 

The new legislation allows research and development small businesses to obtain the new "Technology Jobs and R&D Tax Credit" for qualified expenditures made after January 1, 2015. For report periods between January 1, 2015, and June 30, 2015, a taxpayer who becomes eligible for a "R&D Small Business Tax Credit" can choose to either claim the "R&D Small Business Tax credit" or the "Technology Jobs and Research and Development Tax Credit"

(A) Refund for Certain Small Businesses ("R&D Small Business Tax Credit")

  • Qualified R&D Small Businesses may claim a refund of all or a portion of approved of approved additional Technology Jobs and R&D Tax Credit. When claiming the R&D tax credit, Form RPD-41298 must accompany the CRS-1 form to which the taxpayer wishes to apply the credit.

​(B) "Technology Jobs and R&D Tax Credit" includes the following:​

  • (1) Basic Technology Jobs Tax Credit

  • (2) Additional Technology Jobs Tax Credit

By claiming the "R&D Small Business Tax Credit" for a reporting period prior to July 1, 2015, the taxpayer is INELIGIBLE to claim the "Technology Jobs and R&D Tax Credit" for the same reporting period. Likewise, a taxpayer who claims a "Technology Jobs and R&D Tax Credit" is INELIGIBLE to claim the "R&D Small Business Tax Credit" for the same reporting period.

(A) Refund for Certain Small Businesses

For report periods beginning after July 1, 2011 but not after June 30, 2015, a Qualified R&D Small Business may claim a credit for all gross receipts taxes or 50% of withholding taxes paid on behalf of employees and owners with no more than 5% ownership that are due to the state or payable by the taxpayer with respect to that business for that report period. The credit must be claimed within one year after the end of the report period to which the credit is applicable.

If the total qualified expenditures for the tax year for which the claim is made is:

  • less than $3,000,000, the excess additional credit shall be refunded to the taxpayer;

  • greater than or equal to $3,000,000 and less than $4,000,000, two-thirds of the excess additional credit shall be refunded, and

  • greater than or equal to $4,000,000 and less than or equal to $5,000,000, one-third of the excess additional credit shall be refunded.

"Qualified R&D Small Business" means a business including a corporation, general partnership, limited partnership, limited liability company, sole proprietorship or other similar entity, that:

  1. employed no more than 25 employees on a full-time equivalent basis in any prior calendar month;

  2. had total revenues of no more than $5 million in any prior fiscal year;

  3. did not in any prior calendar month have more than 50% of its voting securities or other equity interest with the right to designate or elect the board of directors or other governing body of the qualified business owned directly or indirectly by another business; and

  4. has made qualified research expenditures for the period of 12 calendar months ending with the month for which the credit is sought of at least 20% of its total expenditures for those 12 calendar months.

"Qualified Research" means research that is undertaken for the purpose of discovering information that is technological in nature and the application of which is intended to be useful in the development of a new or improved business component of the taxpayer, and in which substantially all activities constitute elements of a process of experimentation related to new or improved function, performance, reliability or qualify, but not related to style, taste, cosmetic or seasonal design factors.

"Qualified Research Expenditure" means an expenditure directly related to qualified research, but does not include any expenditure on research funded by any grant, contract or similar mechanism by another person or governmental entity, and does not include any expenditure on property that is owned by a municipality or county in connection with an industrial revenue bond project or expenditures for which the taxpayer has received any credit pursuant to the Capital Equipment Tax Credit Act, the Investment Credit Act or the Technology Jobs Tax Credit Act.

To qualify as a Qualified R&D Small Business, you are affirming that the following three statements are true.

  1. No more than 50 employees were employed in the tax year for which the additional credit is claimed, for which the employer was liable for unemployment insurance coverage.

  2. Total qualified expenditures made in the tax year for which an additional credit is claimed were no more than $5,000,000.

  3. No more than 50% of the employer's voting securities or other equity interest with the right to designate or elect the board of directors or other governing body of the business owned directly or indirectly by another business.

A taxpayer is not eligible for the credit with respect to a calendar month unless ALL requirements are met listed below:

  • No more than 25 employees on a full-time-equivalent basis have been employed in any prior calendar month;

  • Total revenues have not exceeded $5,000,000 in any prior tax year;

  • In any prior calendar month, no more than 50% of the voting securities or other equity interest having the right to designate or elect the board of directors or other governing body of the qualified business has been owned directly or indirectly by another business;

  • Qualified research expenditures in the 12 calendar months ending with the calendar month of the report period are at least 20% of total expenditures for those 12 calendar months;

  • The business has been a qualified research and development small business in the 12-month period ending with this calendar month;

  • The business is not a beneficiary of an industrial revenue bond issued by a municipality or county during the current calendar month; and

  • During the calendar month, the taxpayer did not sell any goods it does not manufacture without receipt of an appropriate NTTC for the sale.​

(B) Technology Jobs and R&D Tax Credit

(1) Basic Technology Jobs Tax Credit is 5% of Qualified New Mexico Expenditures (or 10% if in a rural area)

  • The Basic Tax Credit may be applied against the taxpayer’s compensating tax, withholding tax or gross receipts tax (excluding local option gross receipts tax), due to the state of New Mexico.

  • NO taxpayer may claim an amount of approved basic credit for any reporting period that EXCEEDS  the sum of the taxpayer’s

    • compensating tax,

    • withholding tax and

    • gross receipts tax (excluding local option gross receipts tax) due for that reporting period.

  • Approved basic credit may be carried forward for a period of up to three years from the date of the original claim.

(2) Additional Technology Jobs Tax Credit is 5% of Qualified New Mexico Expenditures (or 10% if in a rural area)

  • ​The taxpayer is also entitled to an additional 5% credit if annual payroll expenses increase by $75,000 over base payroll for every $1,000,000 in qualified expenditures claimed by the taxpayer in a tax year in the same claim.

  • "Annual payroll expense" means the wages paid or payable to employees in the state by the taxpayer in the tax year for which the taxpayer applies for an additional credit.

  • "Base payroll expense" means the wages paid or payable by the taxpayer in the tax year prior to the tax year for which the taxpayer applies for an additional credit, adjusted for any increase from the preceding tax year in the consumer price index for the United States for all items as published by the United States Department of Labor in the tax year for which the additional credit is claimed.

    • In a tax year during which a taxpayer has been part of a business merger or acquisition or other change in business organization, the taxpayer's base payroll expense shall include the payroll expense of all entities included in the reorganization of all positions that are included in the business entity resulting from the reorganization.

  • The Additional Tax Credit may be applied against the taxpayer’s personal or corporate income tax. 

  • Except for "Qualified Research & Development Small Businesses", NO taxpayer may claim an amount of additional credit for any reporting period that exceeds the amount of the taxpayer’s personal or corporate income tax due for that reporting period.

  • Married individuals may each claim only one-half the additional credit.

    • A pass-through entity (PTE) approved for additional credit may pass the additional credit to its owners, partners or members using Form RPD-41368, Notice of Distribution of Technology Jobs and Research and Development Tax Credit.

  • ​​Attach a payroll expense summary that reflects both annual and base payroll expenses

The credit amounts to 5% of Qualified Expenditures or 10% if in a rural area so a company with $250,000 of qualified expenditures is entitled to a credit of $12,500 or $25,000 if in a rural area. A rural area means any area within the state other than the state fairgrounds, an incorporated municipality with a population of 30,000 or more and any area within three miles of the external boundaries.

"Rural Area" – means any area of the state other than the state fairgrounds, an incorporated municipality with a population of thirty thousand or more according to the most recent federal decennial census and any area within three miles of the external boundaries of the incorporated municipality defined above. ​

Eligible Entities: C-Corporation, S-Corporations, LLCs, Partnerships

Deadline for Tax Filing: Application is due within one year following the end of the calendar year in which the qualified expenditure was made. Must also attach Qualified Expenditures summary and description.

  • Recapture:

    • If the taxpayer or a successor in business of the taxpayer ceases operations in New Mexico for 180 consecutive days within a two-year period, any approved unclaimed credit shall be extinguished.

    • Within 30 days after the 180 days, the taxpayer shall pay the tax against which an approved technology jobs and research and development tax credit was taken.​

  • Taxpayer Reporting Requirement Effective January 1, 2015:

    • Taxpayer claiming this credit shall file reports with the Taxation and Revenue Department.

      • The reports shall be submitted on or before June 30 of the year following a calendar year in which the taxpayer claims a basic or additional credit and by June 30 of each of the two succeeding years.

      • The reports shall contain information describing the taxpayer's business operations in New Mexico that is sufficient for the Department to enforce the recapture provision.

      • If a taxpayer fails to submit a required report, the amount of any basic or additional credit claimed for that year shall be subject to the recapture provision.​

  • Claiming the R&D Small Business Tax Credit:

    • Taxpayers must file Form RPD – 41385 to apply for the credit.

    • A taxpayer may claim the credit within 1 year after the end of the report period, by attaching Form RPD-41298, R&D Small Business Tax Credit Claim Form, to the CRS-1 form. 

      • Claiming the credit against a report period renders the taxpayer INELIGIBLE to claim the investment credit or technology jobs tax credit against the same report period.

    • Applying for Basic Credit:

      • A taxpayer may apply for approval of a basic credit within one year following the end of the reporting period in which the qualified expenditure was made.

    • Applying for Additional Credit:

      • A taxpayer may apply for approval of the additional credit within one year following the end of the tax year in which the qualified expenditure was made

Data Required to Compute Credit

  • Claim Period New Mexico Qualified R&D Expenses (QREs)

Credit Carryforward: 

  • Carryforward of Additional Credit - 3 years

    • Any amount of approved additional credit not claimed against the taxpayers income tax or corporate income tax due for a tax year or refunded to the taxpayer may be carried forward for a period of up to three years from the date of the original claim.

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