SALT Report 1439 – New Mexico has enacted legislation that provides a gross receipts deduction for construction-related services, a deduction for construction equipment leases, and expands the deduction for manufacturing consumables.
Deduction for Construction-Related Services
The deduction for sales of construction services now includes construction-related services. A construction-related service is a service directly contracted for or billed to a specific construction project, including design, architecture, drafting, surveying, engineering, environmental and structural testing, security, and sanitation services as well as any services required to comply with governmental construction regulations. However, a construction-related service does not include legal or accounting services, equipment maintenance or real estate sales commissions.
Deduction for Leasing Construction Equipment
Receipts from leasing construction equipment may be deducted from gross receipts if the equipment is leased to a person in the construction business and who provides a nontaxable transaction certificate to the lessor. The lessee can only use the equipment in the following construction situations:
- A construction project that is subject to the gross receipts tax when it is completed or on the completion of the overall construction project of which it is a part,
- A construction project that is taxable on the sale in the ordinary course of business of the real property upon which it was constructed, or
- A construction project that is located on the tribal territory of an Indian nation, tribe or pueblo
Construction equipment includes trash containers, portable toilets, scaffolding and temporary fencing.
Deduction for Property Consumed in Manufacturing
Receipts from selling tangible personal property may be deducted from the gross receipts if the sale is made to a manufacturer who consumes the product in the manufacturing process and provides a nontaxable transaction certificate to the seller. The property cannot be a tool or equipment used to create the manufactured product. The receipts may be deducted in the following percentages:
- 20% of receipts received prior to January 1, 2014
- 40% of receipts received in calendar year 2014
- 60% of receipts received in calendar year 2015
- 80% of receipts received in calendar year 2016, and
- 100% of receipts received on or after January 1, 2017
The purpose of the deductions is to encourage new manufacturing businesses in New Mexico and to reduce the tax burden, including pyramiding, on the tangible personal property that is consumed in the manufacturing process and is purchased by manufacturing businesses in New Mexico.
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