R&D Tax Credits

New Mexico

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New Mexico R&D Tax Credit

Research and development activities are essential to the growth of any business. For this reason, companies need to understand their options regarding tax credits, deductions, and other incentives for R&D.

If your business operates in New Mexico, the state’s R&D credits may help you save money on taxes. Whether you own a small startup company or an established corporation, you can claim the New Mexico research tax credit, provided that you register as an R&D company first.

New Mexico Research and Development Tax Credit Explained

If you conduct qualifying research, making QREs at an eligible facility, you can claim the New Mexico R&D tax credit. This incentive’s official name is the Technology Jobs and Research and Development Tax Credit Act, and it has a few aspects.

The Basic Technology Jobs Tax Credit

The basic tax credit is 5% of your QREs. But this amount increases to 10% for research activities conducted in rural areas. The basic New Mexico research and development tax credit is equivalent to the sum of gross receipts taxes and half of the withholding taxes paid for workers and owners (who hold 5% or less of the company).

You can use it against the gross receipts tax, compensating tax, or withholding tax liability to New Mexico. That said, you can’t claim an authorized basic credit that is bigger than your compensating tax, gross receipts tax, and withholding tax for that taxable period combined.

The Additional Technology Jobs Tax Credit

If your yearly in-state payroll expenditures exceed the base payroll amount by $75,000 for each million in qualifying expenses, you’re also entitled to more incentives (an additional 5% of the credit). To be eligible, you must have qualifying expenses starting January 1, 2015.

Using the Additional tax credit, you can offset any corporate or personal income tax. However, the additional credit you claim cannot exceed your personal or corporate income tax liability for a given reporting period. Also, a husband can claim only half of the wife’s additional credit and vice versa. Using Form RPD-4136, a pass-through business that has been granted this credit may also transfer it to its members, partners, or owners.

Credit for Small Businesses

The Technology Jobs Tax Credit Act was modified on January 1, 2015, to provide a benefit for small businesses. For this reason, small businesses engaged in R&D activities can get a refund of all or 50% of the annual tax due. However, to apply, companies can’t have more than fifty employees and $5 million in QREs.

The Process

You can apply for the state’s Technology Jobs and Research and Development Tax Credit through the RPD-41385 form. Once your request is accepted, you’ll need to use the RPD-41386 form to claim the credit.

Qualifying Expenses

Any expense or its specified portion related to qualifying research at a qualifying facility is considered a qualified expenditure. New Mexico QREs can include buildings, payroll, equipment, test materials, technical books and manuals, contractors and consultants, computer software and its upgrades, depletable land and rent paid for land enhancements, as well as allowable expenses for running or maintaining a facility.

Furthermore, you must make those QREs in a qualifying facility in New Mexico to be eligible. The facility can be a mill, factory, plant, warehouse, refinery, feedlot, dairy, building, or a complex of buildings where you undertake qualifying research. The QREs can also include the land on which the facility is situated as well as all real and tangible personal property located at or inside the research facility.

How to Calculate the New Mexico Research Tax Credit

You can calculate both the Basic and the Additional tax credit by taking 5% of New Mexico QREs. But, for rural areas, that amount is 10% of New Mexico QREs.