2023 New Mexico Statutes › Chapter 7 - Taxation › Article 3A - Oil and Gas Proceeds and Pass-Through Entity Withholding Tax › Section 7-3A-10 - Election of entity-level tax; credit.

A. A pass-through entity may elect on an annual basis to pay a tax at the entity level for a taxable year. The tax that may elected to be paid pursuant to this section may be referred to as the "entity-level tax".
B. A pass-through 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. The election shall be binding on all owners of the electing pass-through entity. The return shall be filed no later than the original or extended due date of the entity's federal partnership or S corporation return for the taxable year. Payment of the entity-level tax shall accompany or precede the filing of the return.
C. The entity-level tax is imposed on the distributed net income of the pass-through entity for the taxable year. The rate of entity-level tax is equal to the higher of the maximum tax rate imposed pursuant to Section 7-2-7 NMSA 1978 or the maximum tax rate imposed pursuant to Section 7-2A-5 NMSA 1978 for the taxable year.
D. Distributed net income of a pass-through entity shall equal the amount allocated and apportioned to New Mexico pursuant to the Uniform Division of Income for Tax Purposes Act [Chapter 7, Article 4 NMSA 1978] from the following:
(1) the total income of the pass-through entity 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 properly allocated or made to:
(a) the United States, this state or a political subdivision of either;
(b) a federally recognized Indian nation, tribe or pueblo located wholly or partially in New Mexico, or any political subdivision thereof;
(c) an organization that has been granted exemption from the federal income tax by the United States commissioner of internal revenue as an organization described in Section 501(c)(3) of the Internal Revenue Code;
(d) a corporate partner that would properly include the income in the partner's New Mexico tax return as part of the partner's unitary business income; or
(e) a pass-through entity that is an owner of the electing pass-through entity; and
(2) less 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 [Chapter 7, Article 2 NMSA 1978].
E. A net operating loss shall not be included in the distributed net income calculated pursuant to Subsection D of this section but may be carried forward until exhausted.
F. Pass-through entities electing to pay the entity-level tax shall make estimated payments of the tax on forms and in the manner as determined by the department. Amounts remitted pursuant to Subsection B of Section 7-3A-3 NMSA 1978 by entities electing to pay the entity-level tax shall be deemed payments of estimated entity-level tax.
G. If, 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 entity-level tax owed by a pass-through entity exceeds the sum of the estimated payments made by the pass-through entity, the pass-through entity shall remit the difference on or before the date the pass-through entity's entity-level tax is due.
H. An owner of a pass-through entity electing to pay the tax imposed under this section may be allowed a tax credit in an amount equal to the owner's share of the tax; 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 or the Corporate Income and Franchise Tax Act [Chapter 7, Article 2A NMSA 1978], the excess shall be refunded to the owner.
I. As used in this section:
(1) "guaranteed payments" means the guaranteed payments described in Section 707(c) of the Internal Revenue Code, as that section may be amended or renumbered;
(2) "net capital gain" means "net capital gain" as defined in Section 1222(11) of the Internal Revenue Code;
(3) "net operating loss" means "net operating loss" as defined in Section 7-2-2 NMSA 1978; and
(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.
History:
Laws 2022, ch. 46, § 3 2023, ch. 159, § 3.
ANNOTATIONS
The 2023 amendment,
effective June 16, 2023, converted a certain exemption to a credit for pass-through entities that elect to pay an entity-level tax, and defined "guaranteed payments," "net capital gain" and "net operating loss" as used in this section; in the section heading, added "credit"; in Subsection B, added "The election shall be binding on all owners of the electing pass-through entity."; in Subsection D, in the introductory clause, after "shall equal the amount", deleted "of net" and added "allocated and apportioned to New Mexico pursuant to the Uniform Division of Income for Tax Purposes Act from the following"; redesignated former Paragraphs D(1) through D(4) as Subparagraphs D(1)(a) through D(1)(d), respectively; in Paragraph D(1), added "the total", and deleted "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" and added "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 properly allocated or made to"; added Subparagraphs D(1)(e); added Paragraph D(2); added a new Subsection E and redesignated former Subsections E and F as Subsections F and G, respectively; in Subsection F, deleted "at the same time and in the same amounts as the withholding required by Subsection B of Section 7-3A-3 NMSA 1978" and added "on forms and in the manner as determined by the department"; and added Subsections H and I.
Applicability.
— Laws 2023, ch. 159, § 5 provided that the provisions of Laws 2023, ch. 159 apply to taxable years beginning on or after January 1, 2023.