Summary:

 House Bill 326 (HB 326) establishes the Small Business Disaster Relief Income Tax Credit to assist small businesses operating in areas declared as disaster zones by the governor. The bill provides a refundable tax credit of $5,000 to eligible business owners who meet specific revenue loss and operational criteria. HB 326 applies to taxable years beginning on or after January 1, 2025. 

Legislation Overview:

 House Bill 326 (HB 326) creates a tax credit available to small business owners whose businesses are located in areas officially designated as disaster zones by the governor. To qualify, businesses must have been in continuous operation for at least two years, have experienced a minimum 30% decline in gross revenue due to the disaster, and have reported annual gross revenue of less than $2,000,000 in the taxable year for which the credit is claimed.

The bill sets the amount of the tax credit at $5,000 per qualifying business. Eligible businesses must apply for certification from the New Mexico Economic Development Department (EDD), which will verify compliance with the criteria and issue certificates of eligibility. The credit is refundable, meaning any amount exceeding a taxpayer’s liability will be refunded. For partnerships and limited liability companies, the credit may be allocated among partners or members in proportion to ownership interests. Married individuals filing separately may each claim half of the credit that would otherwise be available for a joint return.

The bill mandates that the tax credit be included in the tax expenditure budget, ensuring ongoing evaluation of its fiscal impact. HB 326 applies to taxable years beginning on or after January 1, 2025.

Implications

HB 326 will reduce state income tax revenue due to the issuance of refundable credits, the extent of which will depend on the number of businesses qualifying for and claiming the credit in any given year. Because the credit is refundable, the fiscal impact will not be limited to reductions in tax liability but will also include direct outflows from the General Fund for refunds issued to qualifying businesses.

EDD will incur administrative costs associated with processing applications, verifying business eligibility, and issuing certifications. Additionally, the New Mexico Taxation and Revenue Department will need to ensure compliance and track credit claims within the tax expenditure budget.

While the tax credit provides financial relief for small businesses affected by disasters, its effectiveness will depend on the clarity of application processes, the speed of fund distribution, and the extent to which eligible businesses apply. The $5,000 credit may provide limited relief depending on the severity of financial losses incurred by businesses in disaster zones. The bill does not establish a cap on the total amount of credits that may be issued, meaning the potential fiscal impact remains uncertain.
 

Current Law:

 New Mexico tax law does not currently provide a specific income tax credit for small businesses affected by disasters. While general disaster relief programs and federal assistance may be available, there is no dedicated state-level mechanism for direct tax relief to businesses impacted by emergencies. Business owners must rely on other forms of financial aid, such as emergency loans, federal disaster relief funds, or insurance claims. HB 326 introduces a targeted tax credit to assist qualifying businesses in recovering from disaster-related revenue losses. 

Amendments:

 Amended February 19, 2025 in HRDLC:

HRDLCa/HB 326: The House Rural Development, Land Grants and Cultural Affairs Committee amendment to House Bill 326 introduces the following pertinent changes:

The committee amendment modifies the eligibility criteria for businesses by replacing the requirement that the business be located in a “disaster area declared by the governor” with a requirement that the business be in an area “for which a governor’s state of emergency proclamation has been issued in response to a disaster or emergency event.” Additionally, the amendment specifies that the area covered by the proclamation cannot encompass the entire state of New Mexico. The amendment also clarifies that the required 30% revenue decline must have occurred in the taxable year for which the credit is claimed, and that the decline is measured in comparison to the previous taxable year. HRDLCa/HB 326 was adopted by the House Rural Development, Land Grants and Cultural Affairs Committee and referred to the House Taxation and Revenue Committee for further consideration.

Implications
The fiscal implications of HB 326 remain unchanged in HRDLCa/HB 326. The credit provides financial relief to small businesses affected by disasters but will reduce state income tax revenues by the total amount of credits claimed. The refundability of the credit increases its fiscal impact, as businesses with no tax liability will still receive the full $5,000 benefit. The limitation on eligibility to businesses affected by state of emergency proclamations, rather than general disaster declarations, may narrow the pool of eligible applicants, potentially reducing the total cost to the state. However, the restriction that the proclamation cannot cover the entire state ensures the credit targets localized disasters rather than statewide economic downturns.