New Mexico offers several incentive programs to organizations across industries, the most prominent of which are directed at employers offering high-paying jobs, making advancements in the technology sector, or investing in manufacturing. Answers to common questions about these programs are further detailed below.
Top New Mexico Tax Credits and Incentives
The top four tax credits and incentives that your organization could take advantage of include:
- High Wage Jobs Tax Credit
- Technology Jobs and R&D Tax Credit
- Investment Tax Credit
- Job Training Incentive Program
High Wage Jobs Tax Credit (HWJTC)
The HWJTC is a refundable tax credit designed to incentivize quality job creation, with differing thresholds for jobs in urban versus rural communities. This credit applies to the state portion of the gross receipts, compensating, and withholding taxes, with any excess credit being refunded as cash to the taxpayer.
How Much Money Could Be Available?
The benefit is equal to 8.5% of the wages paid for each new qualified job created and is capped at $12,750 per job, per year. Employees can generate the credit for up to four years.
What Constitutes a Quality Job?
- $40,000 or more annual salary for employees in rural communities
- $60,000 or more annual salary for employees in urban communities
- Employment of at least 44 weeks
- Employee must be a New Mexico resident
- Employee not related to anyone with more than a 50% owner stake of the company
How Does a Company Qualify?
Companies with increasing head counts from year to year that also qualify for the Job Training Incentive Program, which is detailed in a section below.
This credit focuses on manufacturing, non-retail companies and excludes industries such as construction and extraction.
How Do You Claim the HWJTC?
Submit an application, employee eligibility retail report, and claim form to the New Mexico Taxation and Revenue Department (TRD).
Taxpayers must apply for approval after the close of a qualifying period—12 months after the employee begins working—but not later than 12 months following the end of the calendar year in which the taxpayer’s final qualifying period closes.
Note that tax liability isn’t necessary to take advantage of this credit, since it is refundable.
Technology Jobs and R&D Tax Credit
Eligible companies incurring qualified expenditures while conducting qualified research in New Mexico may qualify.
Qualified research is defined as:
- Intended to help develop new or improved business component of the taxpayer
- Technology based
- Related to new or improved function, performance, reliability, or quality
How Much Money Could Be Available?
An eligible company can claim a credit up to 5% of qualified expenditures (10% in certain rural areas)—and possibly an additional 5% (also 10% in rural areas)—if they increase annual payroll expenses by $75,000 over the prior year’s payroll for every million dollars in qualified expenditures claimed.
Eligible small businesses may be entitled to a refund of a portion of their approved additional technology jobs and R&D Credit if that company has less than 50 employees and not more than $5 million in qualified expenditures during the tax year being claimed.
How Do You Qualify for the Technology Jobs and R&D Tax Credit?
Companies that incur expenditures for qualified research within the state of New Mexico may qualify.
Possible types of qualifying expenditures:
- Payroll
- Test materials
- Consultants and contractors
- Computer software and upgrades
- Buildings
- Equipment
- Technical books and manuals
- Depletable land and rent paid or incurred for land improvements
- Allowable amounts paid or incurred to operate or maintain a facility
How Do You Claim the Credit?
Taxpayers may apply for the credit following the end of the calendar year in which qualified expenditures were made. The basic tax credit may be applied against compensating tax, withholding tax, or gross receipts tax (GRT) that the taxpayer owes New Mexico.
It can also be applied against the taxpayer’s personal or corporate income tax. Eligible small businesses may be entitled to a refund of a portion of the additional tax credit.
Taxpayers investing in qualified research, specifically developing new or improved products and processes, could benefit from this credit.
Investment Tax Credit
The Investment Tax Credit (ITC) is a credit for certain equipment purchased or brought into New Mexico in connection with a manufacturing operation. The credit has specific employment requirements associated with equipment costs being claimed.
How Much Money Could Be Available?
Generally, 5.125% of the value of qualified equipment would be available for the credit. For qualified equipment subject to GRT or compensating tax, the credit is equal to the state and local GRT rate multiplied by the value of qualified equipment.
How Do You Qualify for the ITC?
Equipment must be used in a manufacturing capacity and subject to depreciation under the Internal Revenue Code (IRC). Other eligibility criteria include job growth—specifically, one employee must be added for every $750,000 of equipment up to $30 million. For amounts exceeding $30 million, one employee must be added for each $1 million of equipment.
What’s the Process of Claiming the ITC?
After submitting the required application, a claim form should be submitted to the TRD.
Job Training Incentive Program
The Job Training Incentive Program is a cash reimbursement grant for the training accompanying newly created jobs in expanding or relocating businesses.
How Much Money Could Be Available?
The program reimburses 50%–75% of employee wages for up to six months of training. Custom training at a New Mexico public educational institution could also be reimbursed.
The Job Training Incentive Program provides funding for the following types of training:
- Custom classroom training at a public educational institution
- Structured on-the-job training (OJT)
- Combined classroom training and OJT
Expenses are reimbursed after training is completed.
How Do You Qualify for the Job Training Incentive Program?
To be eligible for the Job Training Incentive Program, a company needs to manufacture or produce a product in New Mexico. Certain non-retail service companies could also be eligible if they export at least 50% of their services out of state. Businesses in certain industries aren’t eligible, including agriculture, construction, extractive industries, gambling, health care, and retail.
The program reimbursement is for new, full-time, year-round jobs that are directly related to the creation of the product or delivery of the service. Intern positions may be eligible. The trainees must also be New Mexico residents for at least one year prior to employment.
How Do You Get the Incentive?
Companies can apply through the New Mexico Economic Development Department after confirming eligibility through a questionnaire. Applying requires submitting a written proposal to the program’s board for approval. Applicants should submit their application before training is conducted, and keep in mind that the program isn’t open to existing employees.
Tips for Applying to New Mexico Tax Credits
Note that the state audits almost all tax credit applications, making proper documentation of the qualified activities and expenses a crucial part of claiming and supporting the credits.
Where applicable, it’s worth noting that as the economy begins to move out of a COVID-19 pandemic environment, credit audits may return to including site visits to verify equipment locations.
Companies should have robust training programs with appropriate administrative support available to provide for a successful completion of the award contract. The awardee must arrange for a third-party review to check program requirements are met.
We’re Here to Help
For insight on whether your company is eligible for these tax credits and incentives, or guidance on claiming contact your Moss Adams professional. You can also visit our Tax Credits & Incentives Services page for additional resources.
Special thanks goes to Ryan Ellinghausen for his contributions to this article.