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

New Mexico apportions business income of multi-state corporations using a three-factor formula. The apportionment percentage equals the sum of the property factor, payroll factor, and sales factor, divided by three. Certain taxpayers engaged in manufacturing, operating computer processing facilities, or with headquarters operations in New Mexico may elect a single sales factor method instead.

Source: 3.5.19.8 NMAC

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