HB 368 — PASS-THROUGH ENTITY TAX CREDIT

h r i s (2) the value of room and board provided by h , t, federal, state or local governments or by private individuals e u g e b l e e h or agencies based upon financial need and not as a form of n d d i = = o h compensation;

l ] b ,d i a º e (3) payments pursuant to a federal, state or rlocal igovernment =program rdirectly tor eindirectly wto d m a nthird oparty localon governmentbehalf programof directlythe ortaxpayer indirectlywhen identified to a thirdparticular duse mor :invoice by the payer;

b e d s º o t n = .224933.2AIC February 20, 2023 (3:15pm) s k m e - 6 - e a n e d r e l u [ A d party on behalf of the taxpayer when identified to a particular use or invoice by the payer;

(1) an amount equal to the standard deduction allowed the taxpayer for the taxpayer's taxable year by Section 63 of the Internal Revenue Code, as that HB 368/a Page 6 section may be amended or renumbered;

(2) an amount equal to the itemized deductions defined in Section 63 of the Internal Revenue Code, as that h section may be amended or renumbered, allowed 5 the taxpayer for u » r the taxpayer's taxable year less the amount excluded pursuant t h g e l i to Paragraph (1) of this subsection and less the amount of h r i s state and local income and sales taxes included in the h , e h taxpayer's itemized deductions;

t u g e b l e e , gh (3) an amount equal to the product of the n d d i = = o h exemption amount allowed for the taxpayer's taxable year by l ] b ,d i a º r Section 151 of the Internal Revenue Code, as that section may e r = t e w d m a n o be amended or renumbered, multiplied by the number of personal dexemptions mallowed :for federal income tax purposes;

b r e t º o t n = .224933.2AIC February 20, 2023 (3:15pm) s k m e - 7 - e a n e d r e l u [ A d exemptions allowed for federal income tax purposes;

[(6)(6) for taxable years thatbeginning beganon prioror toafter January 1, 1991,2013, an amount equal to the sum of:of any net operating loss carryover deductions to that year claimed and allowed;

(a)provided net operating loss carryback deductions to that yearthe fromamount taxableof yearsany beginningnet prioroperating toloss Januarycarryover 1,may 1991be claimedexcluded andonly allowed, as providedfollows: by the Internal Revenue Code;

and(a) (b)in netthe operatingcase lossof carryovera deductionstimely tofiled thatreturn, in the taxable year claimedimmediately andfollowing allowed;the taxable HB 368/a Page 7 year for which the return is filed;

(7)or for(b) taxablein yearsthe beginningcase onof oramended afterreturns Januaryor 1,original 1991returns andnot priortimely tofiled, Januaryin 1,the 2013,first antaxable amountyear equalbeginning hafter to the sumdate ofon anywhich netthe operatingreturn lossor carryoveramended deductions5 toreturn gestablishing othe tnet hroperating thatloss yearis claimedfiled; and allowed;

provided that the amount of any g e i k net operating loss carryover from a taxable year beginning on h r i s or after January 1, 1991 and prior to January 1, 2013 may be h , t, excluded only as follows:

e u g e b l e e h (a) in the case of a timely filed n d d i = = o h return, in the taxable year immediately following the taxable l ] b ,d i a º e year for which the return is filed;

or r i = r t e w d m a n o (b) in the case of amended returns or d m :

b e d s º o t n = .224933.2AIC February 20, 2023 (3:15pm) s k m e - 8 - e a n e d r e l u [ A d 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 shall 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;

(8)] (6) for taxable years beginning on or after January 1, 2013, an amount equal to the sum of any net h operating loss carryover deductions to that year claimed and u » r allowed;

provided that the amount of any net operating loss t h g e l i carryover may be excluded only as follows:

h r i s (a) in the case of a timely filed h , e h return, in the taxable year immediately following the taxable t u g e b l e e , gh year for which the return is filed;

or n d d i = = o h (b) in the case of amended returns or l ] b ,d i a º r original returns not timely filed, in the first taxable year e r = t e w d m a n o beginning after the date on which the return or amended return d m :

b r e t º o t n = .224933.2AIC February 20, 2023 (3:15pm) s k m e - 9 - e a n e d r e l u [ A d establishing the net operating loss is filed;

and [(9)] (7) for taxable years beginning on or h after January 1, 2011, an amount equal to the amount included u » r in adjusted gross income that represents a refund of state and t h g e l i local income and sales taxes that were deducted for federal tax h r i s purposes in taxable years beginning on or after January 1,HB h368/a ,Page e8 h1, 2010;

t u g e b l e e , gh O.

"net operating loss" means any net operating n d d i = = o h loss, as defined by Section 172(c) of the Internal Revenue l ] b ,d i a º r Code, as that section may be amended or renumbered, for a e5 r = t e w d m a n o taxable year as further increased by the income, if any, from dobligations mof :the United States for that year less related expenses;

b r e t º o t n = .224933.2AIC February 20, 2023 (3:15pm) s k m e - 10 - e a n e d r e l u [ A d obligations of the United States for that year less related expenses;

"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 (6) [(7) or (8) ] of Subsection N of this section, may be excluded from base income;

"resident" means an individual who is domiciled h in this state during any part of the taxable year or an u » r individual who is physically present in this state for one t h g e l i hundred eighty-five days or more during the taxable year;

but hHB r368/a iPage s9 any individual, other than someone who was physically present h , e h in the state for one hundred eighty-five days or more during t u g e b l e e , gh the taxable year, who, on or before the last day of the taxable n d d i = = o h year, changed the individual's place of abode to a 5 place l ] b ,d i a º r without this state with the bona fide intention of continuing eactually rto =abide tpermanently ewithout wthis dstate mis not a nresident ofor actuallythe topurposes abideof permanentlythe withoutIncome thisTax stateAct isfor notperiods aafter dthat mchange :of abode;

b r e t º o t n = .224933.2AIC February 20, 2023 (3:15pm) s k m e - 11 - e a n e d r e l u [ A d resident for the purposes of the Income Tax Act for periods after that change of abode;

h X.

"taxable income" means net income less any lump-lump-sum u » r sum amount;

t h g e l i Y.

"taxable year" means the calendar year or fiscalHB h368/a rPage i10 sfiscal year upon the basis of which the net income is computed under h , e h the Income Tax Act and includes, in the case of the return made t u g e b l e e , gh for a fractional part of a year under the provisions of the n d d i = = o h Income Tax Act, the period for which the 5 return is made;

and l ] b ,d i a º r Z.

"taxpayer" means any individual subject to the e r = t e w d m a n o tax imposed by the Income Tax Act." dSECTION m2. :

b r e t º o t n = .224933.2AIC February 20, 2023 (3:15pm) s k m e - 12 - e a n e d r e l u [ A d SECTION 2.

However, in no case shall the credit exceed the amount of the taxpayer's New Mexico income tax liability on that portion of income that is required to be h either allocated or apportioned to New Mexico on which the tax u » r payable to the other state was determined.

TheHB credit368/a providedPage t11 hThe gcredit eprovided l i by this section does not apply to or include income taxes paid h r i s to any municipality, county or other political subdivision of a h , e h state.

t u g e b l e e , gh B.

The credit allowed pursuant to Subsection A of n5 d d i = = o h this section shall be calculated without regard to the credit l ] b ,d i a º r allowed pursuant to Section 7-3A-10 NMSA 1978." e r = t e w d m a n o SECTION 3.

Section 7-3A-10 NMSA 1978 (being Laws 2022, dChapter m46, :Section 3) is amended to read:

b r e t º o t n = .224933.2AIC February 20, 2023 (3:15pm) s k m e - 13 - e a n e d r e l u [ A d Chapter 46, Section 3) is amended to read:

ELECTION OF ENTITY-LEVEL TAX--CREDITTAX--CREDIT.-- .-- A.

A pass-through [entities] entity electing to pay the entity-level tax shall make the election by filing a complete entity-level tax return with the department in the form and manner as prescribed by the department.

h C.

The entity-level tax is imposed on the g o t hr distributed net income of the pass-through entity for the gHB e368/a iPage k12 taxable year.

The rate of entity-level tax is equal to the h r i s higher of the maximum tax rate imposed pursuant to Section h , t, 7-2-7 NMSA 1978 or the maximum tax rate imposed pursuant to e u g e b l e e h Section 7-2A-5 NMSA 1978 for the taxable year.

n5 d d i = = o h D.

Distributed net income of a pass-through entity l ] b ,d i a º e shall equal the amount [of net ] allocated and apportioned to r i = r t e w d m a n o New Mexico pursuant to the Uniform Division of Income for Tax dPurposes mAct :from the following:

b(1) ethe dtotal sincome ºof othe tpass-through nentity =properly .224933.2AICreported Februaryfor 20,federal 2023income (3:15pm)tax spurposes kplus, mfor epartnerships, -the 14amount -of eguaranteed apayments nother ethan dpremiums rfor ehealth linsurance upaid [by Athe dpartnership Purposeson Actbehalf fromof a partner, less the followingnet HTRCºsum»HTRCincome :or guaranteed payments properly allocated or made to:

(1) the total income of the pass-through entity [allocated and apportioned to New Mexico pursuant to the Uniform Division of Income for Tax Purposes Act, less allocations of net income from that amount to:

(1)] properly reported for federal income tax purposes plus, for partnerships, the amount of guaranteed payments other than premiums for health insurance paid by the partnership on behalf of a partner, less the net income or guaranteed payments Hfl1ºproperty»Hfl1 Hfl1ºproperly»Hfl1 allocated or made to:

[(2)] (b) a federally recognized Indian nation, tribe or pueblo located wholly or partially in New Mexico, or any political subdivision thereof;

[(3)] (c) an organization that has been h granted exemption from the federal income tax by the United g o t hr States commissioner of internal revenue as an organization g e i k described in Section 501(c)(3) of the Internal Revenue Code;

h r i s [or] h , t, [(4)] (d) a corporate partner that would e u g e b l e e h properly include the income in the partner's New Mexico tax nHB d368/a dPage i13 = = o h return as part of the partner's unitary business income;

or l ] b ,d i a º e (e) a pass-through entity that is an r i = r t e w d m a n o owner of the electing pass-through entity;

and d(2) mless :the amount of net capital gains that may be deducted pursuant to Section 7-2-34 NMSA 1978 and is properly allocated to owners who are subject to tax pursuant to the Income Tax Act.

b e d s º o t n = .224933.2AIC February 20, 2023 (3:15pm) s k m e - 15 - e a n e d r e l u [ A d (2) HTRCºforty percent»HTRC HTRCºless the amount»HTRC of net capital gains HTRCºthat may be deducted pursuant to Section 7-2-34 NMSA 1978 and is»HTRC properly allocated to owners who are subject to tax pursuant to the Income Tax Act.

[E.] F.

Pass-through entities electing to pay the entity-level tax shall make estimated payments of the tax [at the same time and in the same amounts as the withholding required by Subsection B of Section 7-3A-3 NMSA 1978] on forms and in the manner as determined by the department.

hG. g [F.

]If, G.for a taxable year, the sum of the estimated payments of tax made by a pass-through entity pursuant to Subsection F of this section exceeds the amount of entity-level tax owed, the pass-through entity may apply for a refund of the difference.

If, for a taxable year, the sumentity-level of the o t hr estimated payments of tax madeowed by a pass-through entity gexceeds ethe isum kof pursuantthe toestimated Subsectionpayments [Emade ]by Fthe ofpass-through thisentity, section exceeds the amountpass-through hentity rshall iremit sthe hdifference ofon entity-levelor taxbefore owed,the date the pass-through entityentity's mayentity-level applytax forHB ,368/a t,Page e14 uis gdue. a refund of the difference.

If,H. for a taxable year, the e b l e e h entity-level tax owed by a pass-through entity exceeds the sum n d d i = = o h l ] b ,d of the estimated payments made by the pass-through entity, the i a º e r i = r pass-through entity shall remit the difference on or before the t e w d m a n o date the pass-through entity's entity-level tax is due.

d m :

b e d s º o t n = .224933.2AIC February 20, 2023 (3:15pm) s k m e - 16 - e a n e d r e l u [ A d H.

5 provided that the pass-through entity paid the tax and furnished sufficient information on the pass-through entity's tax return to identify that owner.

If the amount of the credit exceeds the amount of the owner's tax liabilities pursuant to the Income Tax Act HTRCºoror the Corporate Income and Franchise Tax Act»HTRCAct, , the excess shall be refunded to the owner.

Hfl1ºHTRCºand»HTRC»Hfl1 Hfl1ºHfl1ºand»Hfl1»Hfl1 h (3) "net operating loss" means "net operating g o t hr loss" as defined in Section 7-2-2 NMSA 19781978; Hfl1ºHTRCº;

and g e i k (4) "pass-through entity" means a h r i s h partnership or corporation that elects to pass income, , t, e u g losses, deductions and credits through to the entity's eowners b l e e h n d d i shareholders for federal tax purposes»HTRC»Hfl1purposes." Hfl1º;SECTION 4.

=REPEAL.--Sections =7-2-5.12 o h l ] b ,d and i7-2A-4.1 aNMSA ºHB e368/a rPage i15 =1978 r(being tLaws e2022, wChapter d46, mSections a1 nand o2) dare mrepealed. :

b e d s º o t n = .224933.2AIC February 20, 2023 (3:15pm) s k m e - 17 - e a n e d r e l u [ A d (4) "pass-through entity" means a partnership or corporation that elects to pass income, losses, deductions and credits through to the entity's owners for federal tax purposes»Hfl1 ." SECTION 4.

REPEAL.--Sections 7-2-5.12 and 7-2A-4.1 NMSA (being Laws 2022, Chapter 46, Sections 1 and 2) are repealed.

-HB 18368/a -Page »16 g6 o8 »25 r h t i k l i g t h s , e h t l i w l b l e e , gh n d l h = = b , a l º d i a r e r = , a t e d m a n o d m :

b r e t º o t n = .224933.2AIC February 20, 2023 (3:15pm) s k m e e a n e d r e l u [ A d