Summary:

 House Bill 237 (HB 237) establishes a gross receipts tax credit for small businesses with gross receipts of no more than $1,000,000 in the previous calendar year. The bill allows eligible taxpayers to claim a credit equal to 25% of their gross receipts tax liability, with a maximum credit of $20,000 per year. The credit applies to tax liabilities incurred on or after July 1, 2025, and is available until June 30, 2030. The credit is nonrefundable, but unused amounts may be carried forward to future taxable periods. 

Legislation Overview:

 House Bill 237 (HB 237) enacts a new section of the Gross Receipts and Compensating Tax Act, creating a temporary gross receipts tax credit for small businesses. To qualify, a taxpayer must have gross receipts of no more than $1,000,000 in the calendar year prior to the taxable period in which the credit is claimed.

The bill provides a credit equal to 25% of the taxpayer’s gross receipts tax liability, up to a maximum of $20,000 per calendar year. Taxpayers must apply to the Taxation and Revenue Department (TRD) to claim the credit, using forms and procedures prescribed by the department. The credit may be carried forward to future taxable periods if it exceeds the taxpayer’s gross receipts tax liability. However, a taxpayer cannot claim this credit in the same taxable period as another gross receipts tax credit.

The bill also amends Section 7-1-6.4 NMSA 1978, ensuring that the gross receipts used to determine the credit amount are still included when calculating the municipal distribution of gross receipts tax revenue. This prevents a reduction in tax distributions to municipalities due to the credit.

The credit applies to taxable periods beginning on or after July 1, 2025, and will expire on June 30, 2030. TRD must report the annual cost of the credit in the state’s tax expenditure budget.

Implications
HB 237 provides direct financial relief to small businesses by reducing their gross receipts tax burden, allowing them to retain more revenue. By targeting businesses with gross receipts of $1,000,000 or less, the bill supports locally owned businesses, startups, and sole proprietorships that may struggle with tax compliance costs. The credit is substantial, covering up to $20,000 per year, which may be especially beneficial for businesses operating with narrow profit margins.

The bill ensures that municipal revenue distributions remain unaffected, preventing unexpected funding reductions for local governments. However, the credit may reduce overall state tax revenue, depending on how many businesses qualify and the total amount of credits claimed. The requirement for application and approval through TRD adds an administrative burden for both taxpayers and the department, requiring additional oversight and compliance verification.

The five-year sunset provision allows policymakers to evaluate the credit’s effectiveness before making it permanent. If widely utilized, it may require future legislative adjustments to balance small business relief with state revenue considerations. 

Current Law:

 Under current law, all businesses, regardless of size, are subject to the full gross receipts tax rate unless they qualify for specific deductions or credits under the Gross Receipts and Compensating Tax Act. There is no existing tax credit specifically targeted at small businesses with gross receipts of $1,000,000 or less. HB 237 introduces a new tax relief mechanism designed to provide targeted support to small businesses, helping them remain competitive and financially stable while ensuring municipal revenue remains unaffected.