N.M. Stat. § 7-4-10

A. Except as provided in Subsections B and C of this section, all business income
shall be apportioned to this state by multiplying the income by a fraction, the numerator
of which is the property factor plus the payroll factor plus the sales factor and the
denominator of which is three.

   B. If eighty percent or more of the New Mexico numerators of the property and
payroll factors for a filing group, or for a taxpayer that is not a member of a filing group,
are employed in manufacturing or operating a computer processing facility, the filing
group or the taxpayer may elect to have business income apportioned to this state by
multiplying the income by the sales factor for the taxable year.

    C. If a filing group, or a taxpayer that is not a member of a filing group, has a
headquarters operation in New Mexico, the filing group or the taxpayer may elect to
have business income apportioned to this state by multiplying the income by the sales
factor for the taxable year.

   D. To elect the method of apportionment provided by Subsection B or C of this
section, the taxpayer shall notify the department of the election, in writing, no later than
the date on which the taxpayer files the return for the first taxable year to which the
election will apply. The election shall apply as follows:

       (1)     if the election is made for taxable years beginning prior to January 1,
2020, to the taxable year in which the election is made and to each taxable year
thereafter for three years, or until the taxable year ending prior to January 1, 2020,
whichever is earlier;

        (2)     if the election is made for a taxable year beginning on or after January 1,
2020, to the taxable year in which the election is made and to each taxable year
thereafter until the taxpayer notifies the department, in writing, that the election is
terminated, except that the taxpayer shall not terminate the election until the method of
apportioning business income provided by Subsection B or C of this section has been
used by the taxpayer for at least three consecutive taxable years, including a total of at
least thirty-six calendar months; and

       (3)  if the election is made by a qualifying filing group, the election shall apply
to the members of the filing group properly included pursuant to Section 7-2A-8.3 NMSA
1978.

   E. For purposes of this section:

     (1)    "filing group" means "filing group" as that term is defined in the Corporate
Income and Franchise Tax Act [Chapter 7, Article 2A NMSA 1978];

       (2)    "headquarters operation" means:

         (a) the center of operations of a business: 1) where corporate staff
employees are physically employed; 2) where the centralized functions are primarily
performed, including administrative, planning, managerial, human resources,
purchasing, information technology and accounting, but not including operating a call
center; 3) the function and purpose of which is to manage and direct most aspects and
functions of the business operations within a subdivided area of the United States; 4)
from which final authority over regional or subregional offices, operating facilities and
any other offices of the business are issued; and 5) including national and regional
headquarters if the national headquarters is subordinate only to the ownership of the
business or its representatives and the regional headquarters is subordinate to the
national headquarters; or

           (b) the center of operations of a business: 1) the function and purpose of
which is to manage and direct most aspects of one or more centralized functions; and 2)
from which final authority over one or more centralized functions is issued;

       (3)    "manufacturing" means combining or processing components or materials
to increase their value for sale in the ordinary course of business, but does not include:

          (a) construction;

          (b) farming;

          (c) power generation; provided that "manufacturing" includes electricity
generation at a facility that does not require location approval and a certificate of
convenience and necessity prior to commencing construction or operation of the facility
pursuant to the Public Utility Act [Chapter 62, Articles 1 to 13 of NMSA 1978];

          (d) processing natural resources, including hydrocarbons; or

          (e) processing or preparation of meals for immediate consumption; and

       (4)     "operating a computer processing facility" means managing the necessary
and ancillary activities for the operation of a facility primarily used to process data or
information, but does not include managing the operation of facilities that are
predominantly used to support sales of tangible property or the provision of banking,
financial or professional services.

History: 1978 Comp., § 7-4-10, enacted by Laws 1993, ch. 153, § 1; 2001, ch. 57, § 1;
2001, ch. 284, § 3; 2001, ch. 337, § 1; 2002, ch. 37, § 6; 2009, ch. 147, § 1; 2013, ch.
160, § 7; 2015 (1st S.S.), ch. 2, § 6; 2019, ch. 270, § 21; 2020, ch. 80, § 3; 2024, ch. 67,
§ 31.

                                     ANNOTATIONS

Repeals and reenactments. — Laws 1993, ch. 153, § 1, repealed 7-4-10 NMSA 1978,
as enacted by Laws 1985, ch. 203, § 10, and enacted a new section, effective June 18,
1993.
Repeals. — Laws 2001, ch. 337, § 7 repealed Laws 1999, ch. 35, § 1, which would
have repealed this section, effective January 1, 2003.

Laws 2001, ch. 57, § 1 and Laws 2001, ch. 284, § 3 were repealed by Laws 2002, ch.
37, § 9, effective May 15, 2002.

The 2024 amendment, effective May 15, 2024, removed the sunset date on a provision
that defined "manufacturing" for purposes of this section, to permit certain electrical
energy generators to use a single sales factor in calculating the amount of business
income tax; and in Subsection E, Subparagraph E(3)(c), after "provided that", deleted
"for taxable years beginning prior to January 1, 2024".

Applicability. — Laws 2024, ch. 67, § 42 provided that the provisions of Laws 2024,
ch. 67, §§ 7, 9 and 23 through 31 apply to taxable years beginning on or after January
1, 2024.

The 2020 amendment, effective May 20, 2020, revised the definition of "manufacturing"
as used in the Uniform Division of Income for Tax Purposes Act; in Subsection B, after
"manufacturing", added "or operating a computer processing facility"; and in Subsection
E, Paragraph E(3), in the introductory clause, after "means", deleted "operating a
computer processing facility or", and in Subparagraph E(3)(c), deleted "electric", and
after "power generation", added "provided that for taxable years beginning prior to
January 1, 2024, ‘manufacturing’ includes electricity generation at a facility that does not
require location approval and a certificate of convenience and necessity prior to
commencing construction or operation of the facility pursuant to the Public Utility Act".

The 2019 amendment, effective January 1, 2020, completely rewrote provisions related
to apportioning business income to this state; deleted former Subsections B through D
and added new Subsections B through D; and in Subsection E, added new Paragraph
E(1) and redesignated former Paragraphs E(1) and E(2) as Paragraphs E(2) and E(3),
in Paragraph E(3), in the introductory clause, after "means", added "operating a
computer processing facility or", in Subparagraph E(3)(c), after the subparagraph
designation, added "electric", and after "generation;", deleted "except for electricity
generation at a facility other than one for which both location approval and a certificate
of convenience and necessity are required prior to commencing construction or
operation of the facility, pursuant to the Public Utility Act; or", and added new
Subparagraph E(3)(e) and Paragraph E(4).

The 2015 (1st S.S.) amendment, effective September 6, 2015, provided for taxpayers
whose principal business activity in New Mexico is a headquarters operation to elect to
have business income apportioned to this state, and added the definition for
"headquarters operation"; in Subsection A, after "as provided in", deleted "Subsection
B" and added "Subsections B and C"; in the introductory sentence of Subsection B,
after "principal business activity", added "in New Mexico"; added Subsection C and
redesignated the succeeding subsections accordingly; in Subsection D, after
"Subsection B", added "or C", and added the last sentence; in Subsection E, added a
new Paragraph (1), added the paragraph designation "(2)" preceding "‘manufacturing’",
and redesignated former Paragraphs (1), (2), (3) and (4) of Subsection D as
Subparagraphs E(2)(a), (b), (c) and (d), respectively.

The 2013 amendment, effective January 1, 2014, phased in the use of a single sales
factor by certain taxpayers in apportioning corporate income to the state over five years;
deleted former Subsection B, which provided for the apportionment of business income
by manufacturers, the procedure for electing the method of apportionment, and
limitations on the election of a method of apportionment; and added Subsections B and
C.

The 2009 amendment, effective June 19, 2009, in Paragraph (3) of Subsection C,
deleted "and the Electric Utility Industry Restructuring Act of 1999".

The 2002 amendment, effective May 15, 2002, inserted the exception in Subsection
C(3).

The 2001 amendment, effective June 15, 2001, deleted preliminary language
concerning the purpose of the section from former Subsection A; added current
Subsection A; redesignated former Subsection A as Subsection B; inserted "For taxable
years beginning prior to January 1, 2011" to Subsection B; and deleted former
Subsection B concerning apportion of business income to the state.

Constitutionality of apportionment. — The United States Constitution does not
impose any single method of apportionment on a multistate or multinational taxpayer's
income. NCR Corp. v. Taxation & Revenue Dep't, 1993-NMCA-060, 115 N.M. 612, 856
P.2d 982, cert. denied, 115 N.M. 677, 857 P.2d 788, cert. denied, 512 U.S. 1245, 114
S. Ct. 2763, 129 L. Ed. 2d 877 (1994).

Constitutionality of formula applied to taxation of dividends received from foreign
subsidiaries. — Taxation of dividends from foreign subsidiaries under the separate
corporate entity method violates the commerce clause of the United States Constitution,
and application of the Detroit formula is an insufficient remedy. Conoco, Inc. v. N.M.
Taxation & Revenue Dep't, 1997-NMSC-005, 122 N.M. 736, 931 P.2d 730, cert. denied,
521 U.S. 1112, 117 S. Ct. 2497, 138 L. Ed. 2d 1003 (1997), rev'g1997-NMCA-004, 122
N.M. 745, 931 P.2d 739.

Standard for challenge of apportionment. — A taxpayer seeking to invalidate a
state's apportionment formula must show by clear and cogent evidence that the income
attributed to the state is in fact disproportionate to the business transacted in that state.
NCR Corp. v. Taxation & Revenue Dep't, 1993-NMCA-060, 115 N.M. 612, 856 P.2d
982, cert. denied, 115 N.M. 677, 857 P.2d 788, cert. denied, 512 U.S. 1245, 114 S. Ct.
2763, 129 L. Ed. 2d 877 (1994).

Apportionment of multinational income. — Under this statutory formula, the income
attributable to the state is determined by multiplying the taxpayer's gross income by a
fraction which represents the ratio of sales, payroll, and property located in the state to
the total sales, payroll, and property of the corporation. This does not violate the Foreign
Commerce Clause of the U.S. Constitution by taxing foreign income because the tax in
question is not a tax on any of the domestic corporation's foreign subsidiaries; instead,
the tax falls upon an apportioned share of the domestic corporation's income which it
receives in the form of royalties, interest, and dividends from its unitary foreign
subsidiaries. The fact that the tax is apportioned in part upon the domestic corporation's
foreign income sources does not constitute a bar to state taxation. NCR Corp. v.
Taxation & Revenue Dep't, 1993-NMCA-060, 115 N.M. 612, 856 P.2d 982, cert. denied,
115 N.M. 677, 857 P.2d 788, cert. denied, 512 U.S. 1245, 114 S. Ct. 2763, 129 L. Ed.
2d 877 (1994).

Taxation of undistributed earnings. — Because its subsidiaries with Subpart F (26
U.S.C. § 952) income remain part of the parent's unitary business and the federal
government requires inclusion of the parent's Subpart F income in gross income, under
the unitary business principle, the state assessments in question here do not violate the
United States or New Mexico Constitutions, are fairly apportioned, and tax a fair portion
of such income even though some of the income is undistributed subsidiary earnings.
NCR Corp. v. Taxation & Revenue Dep't, 1993-NMCA-060, 115 N.M. 612, 856 P.2d
982, cert. denied, 115 N.M. 677, 857 P.2d 788, cert. denied, 512 U.S. 1245, 114 S. Ct.
2763, 129 L. Ed. 2d 877 (1994).