Legislation Detail
S 38 TAX CODE CHANGES
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Senate Bill 38 (SB 38) makes several tax changes by modifying, reducing, imposing, and repealing taxes, exemptions, deductions, and distributions: •Modification of tax code include income tax brackets; reduction to 2% of Gross Receipts Tax (GRT), Governmental GRT, Compensating Tax (CT), Leased Vehicle GRT, and certain Gaming Tax; increase of Bingo and Raffle Tax to 2%, and reduction of Capital Gains deduction to a maximum of $1,000. •The following taxes are eliminated by SB 38 repealing various acts: Estate, Interstate Telecommunications GRT, Railroad Car Company, Motor Vehicle Excise, Alternative Fuel, local government Gas and Insurance Premium, Venture Capital Investment, and certain GRT distributions to municipalities. •The bill strikes these tax credits: Rural Job, Film Production, Investment, Laboratory Partnership with Small Business, Technology Jobs and Research and Development, High-Wage Jobs, Advanced Energy Combined Reporting, Affordable Housing, Alternative Energy Product Manufactures, and Rural Health Care Practitioner. •Elimination of Income Tax, Corporate Income and Franchise Tax, and GRT and CT credits, deductions, and exemptions including Back-to-School Tax-Free Weekend, Sale of Food at Retail Food Stores, Lottery Retailer Receipts, Medical and Health Care Services, Durable Medical Equipment, Health Care Practitioner Services •Delayed repeals of Income Tax, Corporate Income and Franchise Tax, and GRT and CT credits, deductions, and exemptions. •Authorizes a GRT exemption for donations to nonprofits. •Imposes additional fees for electric and hybrid vehicles and makes an appropriate to the State Road Fund and Transportation Project Fund. •Eliminates Tax Increment Development District dedication of an increment of state GRT •Technical and conforming changes. The provisions of SB 38 is effective January 1, 2024.Legislation Overview:
Senate Bill 38 (SB 38) addresses various changes to the tax code relating to modifying, reducing, imposing, and repealing taxes, exemptions, deductions, and distributions. Notable provisions of the bill: Tax Rates • Personal Income Tax Brackets Beginning in Tax Year 2024 (TY24) tax brackets are reduced from five to three. The lowest tax rate is 2.0%, middle 4.0%, and the highest is 6.0%. The taxable income level to pay the top rate is decreased by approximately 81% from current statue. The top tax rate is 6.0% for married filing-separately filers earning over $30,000; single filers earning over $40,000; and head of household, surviving spouses, and married filing joint filers earning over $60,000. The current statutory rates range from 1.7% to 5.9%. The highest rate is 5.9% for married filing-separately filers earning over $157,500; single, estates, and trust filers earning over $210,000; and head of household, surviving spouses, and married filing joint filers earning over $315,000. • Corporate Income Tax Rates Beginning in TY24 tax brackets increase from two to three. The lowest tax rate is 2.0%, middle 4.0%, and the highest is 6.0%. The taxable income level to pay the top rate is remains $500,000 per current statute. The tax rate is decreased from 4.8% to 2.0% for taxable income up to $250,000 and from 4.8% to 4.0% for income over $250,000 to $500,000. • Gross Receipts Tax (GRT) and Government GRT (GGRT) rates are reduced from current 5% to 2%. • Compensating Tax (CT) rate is reduced from 5% to 2%. • Leased Vehicle Gross Receipts Tax rate is reduced from 5% to 2%. • Gaming Tax decreases from 10% to 2% for manufacturer licensees on the transfer of gaming devices. Nonprofit operators and distributor licensees sale, lease, transfer of gaming devices remains 10%. Every other game operator continues to be 26%. • Bingo and Raffle Taxes increase from 0.50% to 2%. GRT, GRT Revenue, and GGRT Modifications • Distributions to municipalities from GRT Revenue Bonds are eliminated; however, revenues from Municipal Local Option GRT and CT remains unchanged. • The statute that allows GRT and CT revenue to be used for Local Economic Development Act (LEDA) qualifying projects provides a delayed repealed effective Fiscal Year 2034 (FY34). • Tax Increment Development District (TIDD) dedication of an increment of state GRT is eliminated, but the Municipal Option and County Option GRT increments remain. The change made by SB 38 does not affect existing dedicated increments until the bonds or loan guarantees have been discharged. • Municipal distribution of Interstate Telecommunications GRT is eliminated. • Hold-harmless distributions to local governments for food and health care are eliminated. • Distribution of net receipts of GRT to Law Enforcement Fund (0.03%), Fire Protection Fund (0.21%), Health Care Affordability Fund (0.17%) are provided in place of repealed Insurance Premium Tax. • New distributions of GRT include State Road Fund (0.12%), Transportation Project Fund (0.11%), and Boat Fund (0.54%). • Nonprofit hospitals will no longer be exempted from local option GRT beginning Fiscal Year 2024 (FY24). • Sales and leases to manufacturers will no longer be exempted from GRT and GGRT beginning FY24. • Uranium enrichment plant equipment and sales and enrichment of uranium will no longer be exempted from GRT and GGRT beginning FY34. • Locomotive Engine Fuel GRT deduction for sale of fuel to a carrier is repealed effective FY34. A deduction from CT for fuel used is authorized for carriers that made a capital investment to infrastructure of at least $50 million after July 1, 2012. The Economic Development Department is charged with annual reporting, rulemaking, and certification of deductions. Taxation and Revenue Department (TRD) will assist in recordkeeping and annual reporting to assess the deduction’s effectiveness to pertinent interim legislative committees. • Feminine Hygiene products deduction from GRT and GGRT is eliminated FY34. • The bill repeals the Railroad Car Company Act which subjects private railroad cars’ earnings to property tax. Currently, railroad car companies pay a 1.5% is imposed on the organizations’ gross earnings. • The bill authorizes a new exemption from GRT for receipts of donations to a nonprofit organization. Miscellaneous • SB 38 limits the capital gain deduction to $1,000 beginning in TY24. Current statute stipulates that the greater of $1,000 or 40% of the capital gain income may be deducted. • Electric and Plug-in Hybrid Electric Vehicles Registration Fee SB 38 imposes an additional fee of $650 for electric vehicles and $325 for plug-in hybrid vehicles. Fees are deposited in the State Road Fund (50%) and Transportation Project Fund (50%). • Bonds for county correctional facility loans is repealed because it is outdated law. Acts/Taxes Repealed • Alternative Fuel Tax • Art Acceptance • County and Municipal Gasoline Tax • Estate Tax Currently this tax is tied to the federal state death tax credit, so there is not an estate tax. • Insurance Premium Tax • Interstate Telecommunications Gross Receipts Tax • Investment Credit Act • Motor Vehicle Excise Tax • Railroad Car Company Tax • Venture Capital Investment Act This credit is not being claimed, since claiming the capital gain deduction precludes the investment credit. Credits Repealed • Advanced Energy • Advanced Energy Combined Reporting • Affordable Housing • Agricultural Biomass • Alternative Energy Product Manufacturers • Angel Investment • Blended Biodiesel Fuel Credit has expired. • Conveyance of Land for Conservation or Preservation • Corporate-Supported Child Care Credit has not been claimed in recent years per TRD. • Electronic ID Reader Credit Credit is not being used per TRD. • Film Production • Foster Youth Employment Credit has not been claimed per TRD. • Geothermal Ground-coupled Heat Pump • High-wage Jobs • Investment Credit • Job Mentorship Credit • Laboratory Partnership with Small Business • Physician Participating in Cancer Treatment Clinical Trials Credit has expired. • Preservation of Cultural Property • Qualified Business Facility Rehabilitation There are no enterprise zones to establish eligibility for this credit. • Renewable Energy Production • Rural Health Care Practitioner • Rural Job • Solar Market Development Equipment must have been purchased prior to 2016. There is a similar credit enacted in 2020, New Solar Market Development. • Sustainable Building • Technology Jobs and Research and Development • Veteran Employment Credit has expired. • Welfare-to-Work This credit was tied to a federal program which no longer exists and has no effect. Deductions/Exemptions Repealed • Accredited Diplomats and Missions • Advanced Energy • Agricultural Products • Back-to-School Tax-Free Weekend • Boats Certain receipts already taxed by other programs. • Contributions of Inventory to Nonprofits or Governmental Agencies • Construction Material • Construction Services and Construction-related Services • Department of Health-Licensed Hospitals • Dividends and Interest To avoid double taxation. • Durable Medical Equipment • Event Center Surcharge • Feed and Fertilizer & Auctioneers Selling Livestock and Agricultural Products at Auction • Fees from Social Organizations • Food Stamps/Supplemental Nutrition Assistance Program • Fuel for Space Vehicles • Future Distribution to a Nonresident Beneficiary • Gross Amounts Wagered • Health Care Practitioner Services • Hearing and Vision Aids and Related Services • Insurance Companies • Insurance Premium Tax Exemptions • Internet Services • Interstate Telecommunication Services Certain receipts already taxed by other programs. • Jet Fuel Forty Percent GRT • Jewelry Manufacturing • Lease of Construction Equipment • Lease for Subsequent Lease • Livestock Feeding • Locomotive Engine Fuel • Lottery Retailer Receipts • Medical and Health Care Services • Military Transformational Acquisition Programs • Nonprofit Elderly Care Facility Nonprofits already qualify for a GRT exemption. • Nonprofit Hospital Exemption being repealed is Local Option GRT. These organizations will continue to pay state GRT. • Nonprofit Organizations Fundraisers • Officiating at New Mexico Activities Association Events • Offset Material Finance Effects in Deferred Tax Amounts • Processing Agricultural Products • Purses and Jockey Renumeration • Railroad Equipment, Aircraft, and Space Vehicles • Receipts of Homeowners Associations • Refiners and Person Subject to Natural Gas Processors • Resale Activities of an Armed Forces Instrumentality • Resale of Certain Manufactured Homes Certain receipts already taxed by other programs. • Sale and Use of Agricultural Implements, Farm Tractors, Aircraft, and Motor Vehicles For items that are not required to be registered. • Sale of a Service for Resale • Sale of Aerospace Services for the U.S. Air Force • Sale of Food at Retail Food Stores • Sale of Software Development Services • Sale of Tangible Personal Property for Resale or Leasing • Sale of Textbooks in Certain Bookstores • Sales of Certain Research and Development Services • Sale of Certain Services to an Out-of-State Buyer • Sale or Lease of Real Property & Lease of Manufactured Homes • Sales to Governmental Agencies • Sales to Manufacturers • Sales to Nonprofit Organizations Receipts from selling property and sale of construction material. • Sales to Qualified Film Production Company • Services on Manufactured Products • Solar Energy Systems • Spaceport-related Activities • Space-related Test Articles • Stadium Surcharge • Tax Paid to Another State for Property and Service • Tax Paid to Navajo Nation for Selling Coal • Tax Paid to New Mexico Tribes • Test Articles Receipts regarding contracts with US Department of Defense • Trade Support Company in a Border Zone • Travel Agents’ Commissions • Uranium Hexafluoride and Uranium Enrichment • Use of Tangible Personal Property for Leasing • Vehicles Receipts from selling vehicles which were taxed by other programs and to persons with mobility limitations. • Wind and Solar Generation Equipment SB 38 provides that qualifying taxpayers can claim credits being repealed if applied for prior to the bill’s effective date and any carry-forward balances. makes numerous conforming and technical changes. The effective date of SB 38 is January 1, 2024.Relates To:
SB 38 is related to HB 230, HB 321, SB 38, SB 61,SB 147, SB 184, SB 220, and SB 259.