New Mexico — Corporate Income / Franchise Tax

New Mexico imposes a corporate income tax on the net income of every domestic corporation and every foreign corporation that is employed or engaged in the transaction of business in, into, or from New Mexico, or that derives income from property or employment within the state. A corporation that generates income from activities or sources in New Mexico and must file a federal corporation income tax return (or equivalent) is subject to New Mexico corporate income tax. The term "corporation" includes corporations, joint stock companies, real estate trusts organized under the Real Estate Trust Act, financial corporations, banks, and other business associations; it also includes limited liability companies and partnerships taxed as corporations under the Internal Revenue Code. "Net income" is generally federal taxable income adjusted to exclude amounts not taxable by states.

Source: Corporate Income & Franchise Tax Overview, New Mexico Taxation and Revenue Department

New Mexico imposes a flat corporate income tax rate of 5.9% on taxable income. This rate became effective for taxable years beginning on or after January 1, 2025, replacing the prior two-tier rate structure (4.8% for income under $500,000 and 5.9% for income of $500,000 or more).

Source: N.M. Stat. Ann. § 7-2A-5, Corporate Income & Franchise Tax Overview, New Mexico Taxation and Revenue Department

Form CIT-1, the New Mexico Corporate Income and Franchise Tax Return, is due on the 15th day of the fourth month following the close of the corporation's tax year. For calendar-year corporations, this means April 15. Fiscal year and short year returns must be filed using the form for the tax year in which the fiscal or short year begins.

Source: Filing Requirements, New Mexico Taxation and Revenue Department

For taxable years beginning on or after January 1, 2020, New Mexico sources receipts from sales other than tangible personal property—such as services, intangible property, and digital goods—under detailed, hierarchical, market-based sourcing rules outlined in N.M. Admin. Code § 3.5.18.9 NMAC. These rules supersede the prior cost-of-performance standard that applied for years before 2020.

Intangible property sourcing:

• If the income-producing activity is related to the sale, lease, or license of a marketing intangible (such as a trademark or trade name), receipts are sourced to New Mexico if the subsequent sale or provision of goods, services, or property with respect to which the intangible is used occurs in New Mexico.
• For production intangibles (such as patents or copyrights), the receipts are sourced based on the extent of use in New Mexico.
• If a sale, lease, or license involves both marketing and production intangibles, it is treated according to the taxpayer’s reasonable approximation of use, but if such an allocation cannot be reasonably approximated, it defaults to marketing intangible rules.
• When the taxpayer knows that the customer will sublicense the intangible and the taxpayer's receipts are contingent upon the sublicense, the receipts must be sourced using the rules that apply as if the customer were the taxpayer, using reasonable approximation if necessary.

Software and digital goods:

• Under the regulation, software (whether canned or custom) is treated as tangible personal property unless the location of delivery cannot be determined. If the location cannot be determined, a reasonable approximation method, as provided in the regulation, is required. The regulation recognizes the need to use the best information available when purchaser location or delivery information is lacking.

Services sourcing:

• The sourcing of sales (other than tangible personal property) follows a specific hierarchy:
• If the sale is to a related party, the receipts are sourced using the related customer’s apportionment factor in New Mexico.
• If during the tax year, the taxpayer knows or can reasonably determine that a business or individual customer receives at least five percent (5%) of the taxpayer's total sales of such services, then the sale is sourced to New Mexico if the customer’s residence or principal place from which the contract is managed is in New Mexico.
• For all other cases, the sale is sourced based on the customer’s billing address as maintained in regular business records.
• If none of the above information is available, the taxpayer must use a reasonable approximation using the best information available to the taxpayer at the time the return is filed.

For tax years prior to January 1, 2020, New Mexico used a cost-of-performance standard: receipts were assigned to New Mexico if the income-producing activity was performed entirely within the state, or if the greater proportion (by cost) was performed here.

Source: N.M. Admin. Code § 3.5.18.9 NMAC Source: NM TRD Corporate Income Tax Audit Manual, p. 27-29

Not yet human confirmed.

New Mexico imposes corporate income tax on any corporation that is "engaged in the transaction of business in, into or from this state" or that derives income from property or employment within the state. This broad statutory standard, codified at N.M. Stat. Ann. § 7-2A-3(A), encompasses both traditional physical-presence nexus and economic nexus for remote sellers.

Physical-presence nexus

The New Mexico Taxation and Revenue Department states that any corporation with income from the transaction of business in, into, or from New Mexico or from property or employment in the state has nexus. The Department clarifies that "enough presence" includes employees or representatives who conduct business activities in the state to establish and maintain the business's economic market. Examples of physical presence that create nexus from dollar one include:

• Employees or representatives conducting business activities in New Mexico
• An office, warehouse, or other place of business in the state
• Property or inventory located in New Mexico
• Leasing or servicing property within the state

Economic nexus for corporations lacking physical presence

Beginning July 1, 2019, New Mexico extended its corporate income tax nexus standard to corporations that lack physical presence in the state. Under this economic-nexus rule, a corporation that lacks physical presence engages in business in New Mexico if it had, in the previous calendar year, total taxable gross receipts of at least $100,000 from sales, leases, and licenses of tangible personal property, sales of licenses, and sales of services and licenses for use of real property sourced to New Mexico pursuant to N.M. Stat. Ann. § 7-1-14 (the gross-receipts-tax sourcing statute).

Taxable gross receipts for this purpose do not include receipts eligible for an exemption or deduction under the gross receipts tax. There is no transaction-count threshold; the test is purely revenue-based. The Department's guidance refers to this as establishing nexus for marketplace providers and others lacking physical presence. Once the $100,000 threshold is crossed, nexus is established with the next transaction.

The economic-nexus rule for corporate income tax is tied to the state's gross-receipts-tax sourcing framework. N.M. Stat. Ann. § 7-1-14 generally sources receipts from sales of tangible personal property to the buyer's destination and receipts from services to the location where the service is performed, though the statute contains detailed rules for specific transaction types.

Public Law 86-272 protection

The only exception to New Mexico's broad nexus standard is federal Public Law 86-272 (15 U.S.C. §§ 381–384), which prohibits a state from imposing a net income tax on income derived from interstate commerce if the corporation's only business activities in the state consist of solicitation of orders for sales of tangible personal property that are sent outside the state for approval or rejection and, if approved, are filled by shipment or delivery from outside the state.

The Department states that New Mexico follows the Multistate Tax Commission's guidance on what constitutes protected versus unprotected activities under P.L. 86-272. That guidance, Statement of Information Concerning Practices of Multistate Tax Commission and Signatory States Under Public Law 86-272 (revised 2021), provides detailed lists of protected and unprotected activities.

Important distinction: A corporation that is immune from corporate income tax under P.L. 86-272 must still file a New Mexico Corporate Income and Franchise Tax Return (Form CIT-1) and pay the $50 annual corporate franchise tax if it exercises its corporate franchise in the state. P.L. 86-272 protects only from the net income tax, not the franchise tax.

Further, P.L. 86-272 protection from corporate income tax does not extend to gross receipts tax obligations. A corporation selling tangible personal property into New Mexico may be protected from income tax under P.L. 86-272 but still be required to register and remit gross receipts tax if it exceeds the $100,000 economic-nexus threshold or has other nexus-creating activities.

Interaction with franchise tax

Even when a corporation owes no corporate income tax (for example, because it is protected by P.L. 86-272 or has no New Mexico-sourced income), it may still owe the $50 annual franchise tax if it exercises its corporate franchise in New Mexico. The franchise tax is discussed in a separate section of this guide.

Source: Determining Nexus, New Mexico Taxation and Revenue Department

New Mexico imposes a corporate franchise tax that is separate from and in addition to the corporate income tax. The franchise tax amount is a flat $50 per taxable year or any fraction thereof, regardless of the corporation's income level or profitability. N.M. Stat. Ann. § 7-2A-5.1 establishes this fixed amount.

Who must pay the franchise tax

The franchise tax is imposed on every domestic and foreign corporation that either engages in business in New Mexico or exercises its corporate franchise in the state, whether actively engaged in business or not. A corporation may owe the $50 franchise tax even if it owes no New Mexico corporate income tax.

The New Mexico Taxation and Revenue Department states that "a corporation exercises its corporate franchise when it seeks treatment as a legal entity or person who is subject to the jurisdiction of, and privileges provided by, state law." The Department's guidance identifies activities that indicate exercise of a corporate franchise, including registering with the Public Regulation Commission, registering with any state regulatory agency, appointing a registered agent in New Mexico to accept service of legal process, appointing any agent to carry on activity within the state, using the New Mexico judicial system to enforce contractual provisions or collect debt, and filing legal documents for public notice with any county clerk in the state. These examples come from the Department's Corporate Income & Franchise Tax Overview publication, not from statute or regulation.

Entities subject to the franchise tax

Under the regulatory definition at 3.15.100.7 NMAC, the term "corporation" for franchise-tax purposes "includes each and every domestic and foreign corporation or other organization having or exercising its corporate franchise in this state, whether active or not, or engaging in business in or deriving income from this state, and which either is required to file a corporate income tax return under the Internal Revenue Code or is a disregarded entity for federal income tax purposes."

This means the franchise tax applies to:

• C corporations (domestic and foreign) that engage in business in or exercise their franchise in New Mexico
• S corporations: The Department's guidance confirms that S corporations are subject to the franchise tax. S-corporations report and pay the franchise tax on the S-Corp, Subchapter S Corporate Income and Franchise Tax Return.
• Limited liability companies taxed as corporations for federal income tax purposes that exercise their franchise in New Mexico
• Single-member LLCs (disregarded entities): The regulation expressly states that "disregarded entities" are subject to the franchise tax. A "disregarded entity" is defined in 3.15.100.7 NMAC as "an entity with only one owner whose existence separate from the owner is disregarded for federal income tax purposes."

Franchise tax is independent of income tax

The corporate franchise tax and the corporate income tax are separate obligations. A corporation may owe one, both, or neither, depending on its activities:

• A corporation that exercises its franchise in New Mexico but has no New Mexico-sourced income must still pay the $50 franchise tax.
• A corporation protected from corporate income tax under federal Public Law 86-272 (the interstate-sales solicitation exemption) must still file a New Mexico Corporate Income and Franchise Tax Return (Form CIT-1) and pay the $50 franchise tax if it exercises its corporate franchise in the state. P.L. 86-272 protects only from the net income tax; it does not protect from the franchise tax.
• A corporation that derives income from New Mexico and owes corporate income tax must pay both the income tax and the separate $50 franchise tax.

Combined and consolidated group treatment

Each member of a combined group of unitary corporations and each member of a consolidated group of corporations is subject individually to the $50 franchise tax, even though a combined or consolidated state corporate income tax return is filed by the group. 3.15.100.9 NMAC states this rule explicitly. For example, if a combined return covers five corporations, each of the five owes a separate $50 franchise tax (total: $250), even though only one combined income tax computation is made.

Filing and payment

Corporations report the franchise tax on the same return as corporate income tax:

• C corporations use Form CIT-1, Corporate Income and Franchise Tax Return
• S corporations use the S-Corp, Subchapter S Corporate Income and Franchise Tax Return

The franchise tax return and payment are due on the same date as the corporate income tax return. Under N.M. Stat. Ann. § 7-2A-9(B), the franchise tax for a taxable year is filed and paid on the date specified for payment of corporate income tax for the preceding taxable year—generally the 15th day of the fourth month following the close of the corporation's tax year (April 15 for calendar-year corporations).

Exemptions

The Department's guidance states that the following entities are exempt from both the New Mexico corporate income tax and the corporate franchise tax:

• Insurance companies, reciprocal or inter-insurance exchanges that pay a premium tax to the state
• Trusts organized or created in the United States and forming part of stock bonus, pension, or profit-sharing plans of an employer for the exclusive benefit of employees or their beneficiaries, if the trust is exempt from taxation under the Internal Revenue Code
• Nonprofit organizations (such as religious, educational, and benevolent organizations) exempt from income tax under the Internal Revenue Code, unless the organization has "unrelated business income" taxed under the Code

Source: N.M. Stat. Ann. § 7-2A-5.1, 3.15.100 NMAC, Corporate Income & Franchise Tax Overview, New Mexico Taxation and Revenue Department

Estimated payment requirement — liability threshold A corporation must make estimated corporate income tax payments in New Mexico if it expects a total annual tax liability of $5,000 or more. This threshold applies whether the corporation uses a calendar or fiscal year. If estimated liability is under $5,000, no estimated payments are required. Source: N.M. Stat. Ann. § 7-2A-9.1

Due dates for quarterly installments Corporations make four installment payments during the tax year. For calendar-year taxpayers, payments are due on April 15, June 15, September 15, and December 15. For fiscal-year filers, due dates are the 15th day of the fourth, sixth, ninth, and twelfth months of the fiscal year. Each installment is generally 25% of the required annual payment. Source: N.M. Stat. Ann. § 7-2A-9.1

Calculation of minimum required installment (safe harbors) The minimum required annual payment equals the lesser of:

• 90% of the tax liability for the current year, or
• 100% of the prior year’s liability (if the prior year was a full 12 months and a timely return was filed). Short taxable years are not eligible for the prior year liability safe harbor.

Source: N.M. Stat. Ann. § 7-2A-9.1

Interest for underpayment and waiver process If insufficient estimated tax is paid or installments are late, New Mexico imposes interest on the underpaid amount for the period of underpayment. The interest rate and accrual method are set by N.M. Stat. Ann. § 7-1-67. A waiver of interest may be available if the corporation shows that underpayment was due to reasonable cause and not willful neglect—this requires a written application stating the grounds for waiver. Source: N.M. Stat. Ann. § 7-1-67

Administrative note: The Taxation and Revenue Department provides for estimated payments using procedures outlined in its published guidance. References to forms or payment portals derive from Department publications, not statutory authority.

This revision repairs broken statutory citation links and updates the authority from § 7-2A-8 to § 7-2A-9.1. There is no material change to the law. Not yet human confirmed as of 2024-07-11.

New Mexico mandates combined reporting for corporate income tax purposes for tax years beginning on or after January 1, 2020. Corporations that are members of a unitary group, as defined by N.M. Stat. Ann. § 7-2A-8.3 and departmental regulation, must file a combined report if at least one member does business in New Mexico.

Definition of Unitary Group A "unitary group" is a group of corporations connected by common ownership (at least 50% directly or indirectly) that are sufficiently interdependent, integrated, and operated as a unitary business. The statute provides that a unitary group includes any affiliated group engaged in a unitary business as defined by regulation or judicial decision ([N.M. Stat. Ann. § 7‑2A‑8.3(J)]). Department regulation 3.4.10.14 NMAC further clarifies unitary business principles as requiring unity of ownership, operation, and use.

Mandatory Worldwide Combined Reporting; Water’s Edge Election By default, New Mexico requires worldwide combined reporting – all corporations in a unitary group, both foreign and domestic, are included unless otherwise elected. However, taxpayers may elect a water’s edge combined report, limiting the combined group to those incorporated in or doing business in the U.S. (except for foreign entities with effectively connected income). The water’s edge election is made on the taxpayer’s original return and binds the group for ten years unless the department permits otherwise. See N.M. Stat. Ann. § 7‑2A‑8.3(D), (G).

Filing Requirements and Elections The combined return must include all required unitary group members; excluded related corporations must file separately if they have nexus in New Mexico (3.4.10.16 NMAC). Taxpayers make water’s edge or consolidated return elections by checking the relevant box on Form CIT‑1 and including the necessary schedules (per Department instructions). If a federal consolidated group wants to file on a consolidated New Mexico basis, this is permitted by election and is binding for ten years. All members of a combined or consolidated group are jointly and severally liable for the tax.

Effective Date Mandatory combined reporting applies to taxable years beginning on or after January 1, 2020. Prior to this date, New Mexico permitted but did not require combined reporting.

Source: N.M. Stat. Ann. § 7-2A-8.3 Source: 3.4.10.14–.16 NMAC Source: Corporate Income & Franchise Tax Overview, NM TRD

New Mexico allows corporations to request an extension of time to file the state corporate income and franchise tax return (Form CIT-1), but an extension to file does not extend the time to pay the tax due.

Automatic recognition of federal extension New Mexico automatically grants a six-month extension to file the state return if the corporation has obtained a valid federal extension (Form 7004). In this case, no separate state extension form is required, but a copy of the federal extension must be attached to the New Mexico return when filed. If the taxpayer did not request a federal extension but needs additional time for the state return, then a state extension request (Form RPD-41096) must be submitted to the New Mexico Taxation and Revenue Department by the original return due date.

Length of extension and payment still due An approved extension (federal or state) extends the filing deadline by up to six months, making the extended due date for a calendar-year filer typically October 15 (for original due date April 15). Importantly, the extension does not extend the time to pay the tax due. The full tax must be paid by the original due date to avoid interest and penalties, regardless of whether an extension to file has been granted.

Interest and penalties If the tax is not paid by the original due date, interest accrues from that date until payment is made. Penalties may also apply for failure to pay by the original deadline, even if the return itself is filed under a valid extension.

Authority The rules for extensions are set forth at 3.1.4.12 NMAC and in the agency's "Request an Extension to File" guidance.

Source: 3.1.4.12 NMAC Source: Request an Extension to File, NM Taxation and Revenue Department

Effective for tax years beginning on or after January 1, 2026, the computation of New Mexico corporate taxable income is governed by both pre-existing rules and significant amendments enacted by SB 151 (Laws 2026, ch. 36, § 1). The starting point for calculation remains federal taxable income before the federal net operating loss (NOL) deduction, but new statutory changes clarify decoupling and expand required adjustments.

Starting Point

• Federal taxable income under IRC § 11, before federal NOL deduction (N.M. Stat. Ann. § 7-2A-2(A); as amended by Laws 2026, ch. 36, § 1).

Principal Additions (N.M. Stat. Ann. § 7-2A-2(B), as amended):

• Interest on state/local bonds of other states — as before.
• Federal income tax deduction — any amount deducted for federal income tax (add back).
• Federal NOL deduction — add back federal net operating loss deduction.
• Bonus depreciation (IRC § 168(k)) — add back for property placed in service after January 1, 2026 (reflecting expanded decoupling under SB 151).
• Interest deduction disallowance (IRC § 163(j)) — under SB 151, if a corporation claims a federal interest deduction, New Mexico requires a new adjustment to decouple from excess business interest expense disallowed at the federal level. Practitioners should apply the state calculation method as required.
• Controlled Foreign Corporation (CFC) Income — SB 151 adds new required inclusions for certain CFC income, requiring apportionment under the state formula even if not included in federal taxable income.
• Other state-mandated modifications — as referenced in § 7-2A-2(B)(8).

Principal Subtractions (N.M. Stat. Ann. § 7-2A-2(C), as amended):

• U.S. obligation interest — if exempt under federal law, subtract to the extent included in federal income.
• State tax refunds — subtract refunds of state income tax if included in federal income.
• New Mexico NOL carryforward — subtract per state rules (N.M. Stat. Ann. § 7-2A-5), not federal.
• Depreciation recovery on bonus property — for bonus depreciation property that was added back, subtract the regular depreciation allowed under MACRS.
• Other subtractions prescribed by state law — SB 151 extends authority for regulatory subtraction adjustments.

SB 151 (2026) — Material Amendments:

• Adds a new definition of “base income,” specifically decoupling from certain federal deductions, expands required inclusions (notably CFC income), and authorizes the Taxation and Revenue Department to issue further interpretive regulations.
• These changes will affect returns filed for tax years beginning on or after January 1, 2026. Practitioners should carefully review SB 151 language and Department guidance for new apportionment and decoupling requirements.

Full detail is provided in the legislative text of SB 151 and the Department’s FYI-350 guidance (current version at updated URL below).

Source: N.M. Stat. Ann. § 7-2A-2 (as amended 2026) Source: N.M. Stat. Ann. § 7-2A-5 Source: FYI-350, New Mexico Taxation and Revenue Department

Not yet human confirmed as of 2026-07-11. This revision replaces a broken FYI-350 link and incorporates SB 151 (2026) amendments.

New Mexico applies a throwback rule to the sales factor in corporate income tax apportionment. Under N.M. Admin. Code § 3.5.16.10 NMAC, gross receipts from sales of tangible personal property are assigned to New Mexico (i.e., included in the New Mexico sales-factor numerator) if the property is shipped from New Mexico to another state, U.S. possession, or foreign country, and the taxpayer is not taxable in that destination. The rule captures “throwback” situations where the destination jurisdiction cannot impose a tax on the seller—often called “nowhere income.”

Throwback rule:

• If the taxpayer is not taxable in the state, U.S. possession, or foreign country where property is shipped, the sale is sourced (“thrown back”) to New Mexico and included in its sales-factor numerator.
• If the taxpayer is taxable in the destination jurisdiction, the receipt is assigned to that jurisdiction, not New Mexico.

Double-throwback rule:

• New Mexico’s official audit manual and regulatory practice further recognize a “double-throwback” situation: if the taxpayer is not taxable in either the destination or the state of origin (New Mexico), the sale is also sourced to New Mexico. This ensures such sales are not left unassigned in the sales factor (i.e., "nowhere income" does not escape apportionment). This is consistent with Multistate Tax Commission model rules, and the New Mexico Department of Revenue applies this principle in audit practice.

Special sourcing for U.S. possessions and international destinations:

• The regulation includes sales shipped to U.S. possessions and foreign countries—there is no special sourcing regime for these locations. Sales into any jurisdiction where the taxpayer is not taxable (whether another state, a U.S. territory, or a foreign country) are thrown back to New Mexico.
• There is no provision for excluding sales to U.S. possessions or international destinations from the throwback rule; all follow the same statutory assignment.

Summary:

• Throwback applies to tangible personal property shipped from New Mexico if the taxpayer is not taxable at destination (including U.S. possessions or foreign).
• Double-throwback assignment ensures sales are not left out of the sales factor when the taxpayer is not taxable in either the destination or the origin state.
• No special sourcing exceptions for U.S. possessions or foreign sales—covered by the same throwback rule as for other out-of-state shipments.

Source: 3.5.16.10 NMAC Source: Corporate Income Tax Audit Manual, New Mexico Taxation and Revenue Department, p. 30–31

Not yet human confirmed as of 2026-07-10.

Filing extensions — federal/state process, payment rules, penalties, and franchise tax interaction

New Mexico authorizes a six-month extension of time to file the state corporate income and franchise tax return (Form CIT-1) if the taxpayer obtains a federal extension to file U.S. Form 1120 via IRS Form 7004. The extension is recognized automatically if a copy of federal Form 7004 is attached to the New Mexico return when filed—no separate state form is required (3.1.4.12 NMAC). If no federal extension is requested, a corporation may request a New Mexico-only extension by filing Form RPD-41096 by the original due date.

The extension applies both to the corporate income tax and the $50 annual franchise tax return (per Department guidance and 3.1.4.12 NMAC). The extension is for filing only; it does not extend the deadline for tax payment. Tax must be paid by the original due date (generally the 15th day of the fourth month after year-end—April 15 for calendar-year filers). If tax is not paid by the original due date, interest is assessed from that date (see N.M. Stat. Ann. § 7-1-67), and penalties may apply for failure to pay, regardless of a valid extension to file.

Authority: 3.1.4.12 NMAC (current through 2026) and NM Taxation and Revenue Department guidance (retrieved 2026-06-17).

Source: 3.1.4.12 NMAC Source: Request an Extension to File, NM Taxation and Revenue Department Source: N.M. Stat. Ann. § 7-1-67

Estimated tax payments — threshold, due dates, safe harbor, and interest

Corporations must pay estimated corporate income tax if the anticipated annual tax liability is $5,000 or more, as provided in N.M. Stat. Ann. § 7-2A-8 (current through Laws 2024, ch. 29). Estimated taxes are due in four installments: April 15, June 15, September 15, and December 15 for calendar-year taxpayers; the 15th day of the fourth, sixth, ninth, and twelfth months for fiscal years. Each payment is generally 25% of the required annual amount.

Statute provides that the minimum required annual payment is the lesser of 90% of the current year’s tax or 100% of the prior year's tax (if a 12-month return was filed on time). The safe harbor rules, threshold, and due dates all come from § 7-2A-8. There is no specific penalty for underpayment, but interest accrues on underpaid or late estimated tax under N.M. Stat. Ann. § 7-1-67. Interest may be waived for reasonable cause by written application to the Department (per § 7-1-67(D)).

Estimated payments are reported and paid on Department-identified forms and systems (see current portal/form guidance).

Effective for all corporate tax years after 2024 for thresholds and dates, per session law and Department publications current as of 2026.

Source: N.M. Stat. Ann. § 7-2A-8 Source: N.M. Stat. Ann. § 7-1-67

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Certain New Mexico corporate income taxpayers may elect single-sales-factor apportionment in lieu of the default three-factor formula if they meet specific statutory requirements.

Eligible taxpayers:

• A taxpayer may elect single-sales-factor apportionment if it is (i) a manufacturer or operator of a computer processing facility and at least 80% of its total New Mexico property and payroll factors are attributable to those activities, or (ii) a taxpayer with a "headquarters operation" in New Mexico as defined by NMSA 1978, § 7-4-10(B).
• "Headquarters operation" is defined in statute and generally refers to a principal office directing major administrative or management functions for the company, but the precise definition should be confirmed using the most current statutory text.

Election process and timing:

• The taxpayer must notify the New Mexico Taxation and Revenue Department in writing of its intent to elect the single-sales-factor formula by the due date (including extensions) of the original return for the first year of election.
• There is no designated form—the written notice must simply state the desire to elect under NMSA 1978, § 7-4-10. Taxpayers should retain proof of the filing and ensure the Department acknowledges the election.

Effective date and duration:

• For elections made on or after January 1, 2020, the election remains in effect for a minimum of three consecutive tax years and continues until the taxpayer terminates it with a written notice, which must also be given by the return due date (with extensions) for the terminating year (NMSA 1978, § 7-4-10(C)-(E)).
• After termination, a new election cannot be made for three years.
• For elections made prior to January 1, 2020, the election applied for three consecutive years only, unless revoked.

Summary:

• Eligible taxpayers: manufacturers, computer processing facility operators, and headquarters operations as defined in law
• Election: written notice, due by return due date
• Duration: minimum 3-year binding period after 1/1/2020; continues until terminated (with written notice). Cannot reelect for three years after termination

Source: NMSA 1978, § 7-4-10

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Summary of Reporting Methods and Their Effects New Mexico unitary groups must by default file on a worldwide combined basis, but may elect water’s edge or federal consolidated returns (NMSA 1978 § 7-2A-8.3; 3.4.10 NMAC). The choice of method directly affects which legal entities are included in the state return and how intercompany transactions are treated.

Water’s Edge and Federal Consolidated Elections

• A water’s edge election, made with the original return, restricts the combined group to corporations incorporated in or doing most of their business in the United States (including domestic corporations and foreign entities with effectively connected U.S. income). This election is binding for seven years absent Department approval for a change.
• A federal consolidated election allows New Mexico filers to mimic the federal consolidated return group, but only for entities with sufficient U.S. presence or income (see § 7-2A-8.3(D)-(G), 3.4.10.14 NMAC). Foreign affiliates and so-called 80/20 companies may be excluded from both elections if they fail to meet presence tests.

Inclusion/Exclusion of Intercompany Income and Factor Effects

• Income of excluded group members (e.g., foreign affiliates, 80/20 companies not meeting "U.S. presence" rules) is NOT directly reported in the New Mexico group’s return. However, exclusions have a significant effect on apportionment:
• Sales, property, and payroll of excluded entities are not included in the numerator or denominator of the group apportionment factors.
• Sales and other transactions between included and excluded group members are NOT eliminated or deferred; instead, they must be fully recognized in calculating taxable income and apportionment factors (see 3.4.10.16 NMAC).
• Only transactions and balances between group members actually included in the filed combined/consolidated group can be eliminated. Intercompany eliminations do not apply to dealings with excluded members.

Principal Traps and Compliance Issues

• Failure to include transactions with excluded affiliates in both the sales factor and income may understate New Mexico tax. This is a key trap for filers new to the state’s regime.
• Groups with complex cross-border structures must inventory which members meet the statutory U.S. presence tests for inclusion and document intercompany flows accordingly.

Source: NMSA 1978 § 7-2A-8.3 Source: 3.4.10.14 NMAC Source: 3.4.10.16 NMAC

Not yet human confirmed as of 2026-07-01.