On April 4, New Mexico enacted significant corporate income and gross receipts/compensating tax changes. Notably, for corporate income tax purposes, the state adopted mandatory unitary combined reporting, market-based sourcing for sales of other than tangible personal property, and subtraction modifications for subpart F income and GILTI. Gross receipts/compensating tax changes include adopting marketplace provider and destination sourcing provisions.
After experimenting with mandatory unitary combined reporting for select taxpayers (i.e. large retailers), New Mexico now has adopted mandatory worldwide unitary combined reporting as the default filing method for all corporate taxpayers effective for taxable years beginning on or after January 1, 2020. Taxpayers that historically have filed in New Mexico on separate entity, water’s edge combined, or federal consolidated basis should consider the impact of this change and determine whether it may be advisable to elect to file on a water’s-edge combined reporting or federal consolidated basis.
Unlike the pattern followed in many other states, New Mexico’s move to market-based sourcing was not accompanied by a change to single or enhanced sales factor apportionment weighting. New Mexico remains an equally weighted three-factor formula state, with qualified manufacturers and in-state headquartered corporations allowed a single sales factor option.