Are R&D Tax Credits Available in New Mexico?

Yes. The state of New Mexico provides Research and Development (R&D) Tax Credit to qualified small business taxpayers conducting research in New Mexico. Here is a summary of the credit:

  • NEW: Effective January 1, 2015, the Technology Jobs Tax Credit Act is revised to add an incentive for R&D small businesses, and as of January 1, 2016, will be known as the Technology Jobs and Research and Development Tax Credit Act. The new legislation allows R&D small businesses to obtain the new "technology jobs and research and development tax credit" for qualified expenditures made after January 1, 2015. For report periods between January 1, 2015, and June 30, 2015, a taxpayer who becomes eligible for a "research and development small business tax credit" can choose to either claim the "research and development small business tax credit" or the "technology jobs and research and development tax credit".  Likewise, a taxpayer who claims a "technology jobs and research and development tax credit" is ineligible to claim the "research and development small business tax credit" for the same reporting period. The taxpayer must not employ more than 50 employees and must not have qualified expenditures of more than $5 million. The basic credit is equal to 5% of qualified expenditures (10% if in a rural area). There is an additional 5% credit available for taxpayers that raise their in-state payroll by $75,000 for every $1 million in qualified expenditures.
  • The credit is equal to the sum of all gross receipts taxes and 50% of withholding taxes paid on behalf of employees and owners with no more than 5% ownership, that are due to the state.
  • For report periods beginning on or after July 1, 2011, and before June 30, 2015, but for no more than 35 consecutive calendar months after the first month for which a claim for the credit is made by a taxpayer or by a person to whom the taxpayer is a successor, pursuant to Section 7-1-61 NMSA 1978. The time period between July 1, 2009, through June 30, 2011 is not included in the determination of consecutive calendar months, but claims made for report periods after July 2005 or prior to July 1, 2009, are included.
  • A qualified business is a corporation, general partnership or similar entity with 25 or fewer employees, revenues under $5 million annually and whose qualified research and development expenditures for the prior 12 months was equal to at least 20% of total expenditures for those calendar months.
  • Taxpayers must file Form RPD – 41385 to apply for the credit within one year following the end of the calendar year in which the qualified expenditures were made. A taxpayer may claim the credit within 1 year after the end of the report period by attaching Form RPD-41298, Research and Development Small Business Tax Credit Claim Form, to the CRS-1 form. Claiming the credit against a report period renders the taxpayer ineligible to claim the investment credit or technology jobs tax credit against the same report period.
  • Taxpayers can carryforward additional credit for up to three years from the date of the original claim.

New Mexico R&D Tax Credit Case Study

An Albuquerque company designs and manufactures components for the aerospace industry. The company claims R&D credits each year for the development activities of its engineers. This project involved a multi-year study covering the tax year 2015.

The Company qualified for the federal R&D Tax Credit of $135,333 and an additional $65,000 of state R&D Tax Credit in New Mexico.

FEDERAL
NEW MEXICO
Year
Total QREs
Credit
Total QREs
Credit
2015
$1,300,000
$135,333
$1,300,000
$65,000

You can read more about this New Mexico tax credit case study here.

Four-Part Test

Qualified research activities are defined by the four-part test outlined below

Technological in Nature
Activities must fundamentally rely on the principles of physical or biological science, engineering, or computer science.
Permitted Purpose
Activities must be performed in an attempt to improve the functionality, performance, reliability, or quality of a new or existing business component.
Eliminate Uncertainty
Activities intended to discover information that could eliminate technical uncertainty concerning the development or improvement of a product.
Experimentation
All activities must include a process of experimentation including testing, modeling, simulating, and systematic trial and error.