N.M. Stat. § 7-4-2

As used in the Uniform Division of Income for Tax Purposes Act:

    A. "business income" means income arising from transactions and activity in the
regular course of the taxpayer's trade or business and income from the disposition or
liquidation of a business or segment of a business. "Business income" includes income
from tangible and intangible property if the acquisition, management or disposition of
the property constitute integral parts of the taxpayer's regular trade or business
operations;

   B. "commercial domicile" means the principal place from which the trade or
business of the taxpayer is directed or managed;

   C. "compensation" means wages, salaries, commissions and any other form of
remuneration paid to employees for personal services;
   D. "department" means the taxation and revenue department, the secretary of
taxation and revenue or any employee of the department exercising authority lawfully
delegated to that employee by the secretary;

   E. "nonbusiness income" means all income other than business income;

    F. "sales" means all gross receipts of the taxpayer not allocated under Sections 7-4-
5 through 7-4-9 NMSA 1978 of the Uniform Division of Income for Tax Purposes Act;

   G. "secretary" means the secretary of taxation and revenue or a division director
delegated by the secretary; and

    H. "state" means any state of the United States, the District of Columbia, the
commonwealth of Puerto Rico, any territory or possession of the United States, and any
foreign country or political subdivision thereof.

History: 1953 Comp., § 72-15A-17, enacted by Laws 1965, ch. 203, § 2; 1986, ch. 20,
§ 55; 1999, ch. 47, § 7.

                                     ANNOTATIONS

The 1999 amendment, effective June 18, 1999, in Subsection A inserted "income from
the disposition or liquidation of a business or segment of a business. 'Business income"'
and made minor stylistic changes.

                          I.     GENERAL CONSIDERATION.

"Transactions and activity in the regular course of the taxpayer's trade or
business" means business deals and the performance of a specific function in the
normal, typical, customary or accustomed policy or procedure of the taxpayer's trade or
business. Champion Int'l Corp. v. Bureau of Revenue, 1975-NMCA-106, 88 N.M. 411,
540 P.2d 1300, cert. denied, 89 N.M. 5, 546 P.2d 70; Tipperary Corp. v. N.M. Bureau of
Revenue, 1979-NMCA-031, 93 N.M. 22, 595 P.2d 1212, cert. denied, 92 N.M. 675, 593
P.2d 1078.

                           II.    CONSTITUTIONAL ISSUES.

Fairly apportioned tax constitutional. — When the apportioned tax is only on that
portion of taxpayer's income that fairly represents the extent of taxpayer's business
activities in this state, tax is not violative of the due process or commerce clauses of the
federal constitution. Tipperary Corp. v. N.M. Bureau of Revenue, 1979-NMCA-031, 93
N.M. 22, 595 P.2d 1212, cert. denied, 92 N.M. 675, 593 P.2d 1078.

Taxation of dividends from foreign subsidiary. — The right of a state to tax
dividends from foreign subsidiaries must be considered in relation to the due process
requirements that the income attributed to a state for tax purposes be rationally related
to values connected with the taxing state. F.W. Woolworth Co. v. Taxation & Revenue
Dep't, 458 U.S. 354, 102 S. Ct. 3128, 73 L. Ed. 2d 819, reh’g denied, 459 U.S. 961, 103
S. Ct. 274, 74 L. Ed. 2d 213 (1982).

Taxation of income from foreign tax credit. — A foreign tax credit arising from the
taxation by foreign nations of a corporation's foreign subsidiaries that had no unitary
business relationship with the state, efforts by the state to tax this income "deemed
received" - with respect to which the state contributed nothing - were held to contravene
the due process clause. F.W. Woolworth Co. v. Taxation & Revenue Dep't, 458 U.S.
354, 102 S. Ct. 3128, 73 L. Ed. 2d 819, reh’g denied, 459 U.S. 961, 103 S. Ct. 274, 74
L. Ed. 2d 213 (1982).

                              III.   BUSINESS INCOME.

All income of business organization is not "business income"; business income
must arise from the regular course of business. Tipperary Corp. v. N.M. Bureau of
Revenue, 1979-NMCA-031, 93 N.M. 22, 595 P.2d 1212, cert. denied, 92 N.M. 675, 593
P.2d 1078.

Business income must arise from such transactions. — To constitute business
income the income must arise from transactions and activity in the regular course of a
trade or business. McVean & Barlow, Inc. v. N.M. Bureau of Revenue, 1975-NMCA-
128, 88 N.M. 521, 543 P.2d 489, cert. denied, 89 N.M. 6, 546 P.2d 71.

Factors pertinent in determining if income is business income. — Pertinent in
determining whether income arises from transactions in the regular course of business
is the nature of the particular transaction and former practices of the business entity;
also pertinent is how the income is used. Champion Int'l Corp. v. Bureau of Revenue,
1975-NMCA-106, 88 N.M. 411, 540 P.2d 1300, cert. denied, 89 N.M. 5, 546 P.2d 70;
Tipperary Corp. v. N.M. Bureau of Revenue, 1979-NMCA-031, 93 N.M. 22, 595 P.2d
1212, cert. denied, 92 N.M. 675, 593 P.2d 1078.

Use of investment income. — The use to which a multistate corporation put its
investment income was determinative of whether it was business income. Champion
Int'l Corp. v. Bureau of Revenue, 1975-NMCA-106, 88 N.M. 411, 540 P.2d 1300, cert.
denied, 89 N.M. 5, 546 P.2d 70.

Determination of business income. — Use to which income is put determines
whether it is business income. Tipperary Corp. v. N.M. Bureau of Revenue, 1979-
NMCA-031, 93 N.M. 22, 595 P.2d 1212, cert. denied, 92 N.M. 675, 593 P.2d 1078.

Short-term investment income held business income. — Since a multistate
corporation derived interest income from capital earned in its business, rather than
having a large cash balance in the bank, purchasing short-term investments and highly
liquid assets from which the interest was derived, money from which short-term
investments was needed for future business activity, such investment was a specific
function of the corporation, and that it was usual and customary in the corporation's
business to follow this practice, whenever there was enough money or business income
that was not immediately needed in the business, and therefore the investment income
was business income. Champion Int'l Corp. v. Bureau of Revenue, 1975-NMCA-106, 88
N.M. 411, 540 P.2d 1300, cert. denied, 89 N.M. 5, 546 P.2d 70.

Rent of part of office space held business income. — Although a multistate
corporate taxpayer claimed that income derived from rent of 5% of its total office space
was not "business income" because it was not in the business of renting real estate, the
most reasonable inference to be drawn from the record is that rental of available office
space was a customary procedure, done in the regular course of the taxpayer's
business, and since there was no evidence in the record to contradict this inference, the
rental income was held to be "business income." Champion Int'l Corp. v. Bureau of
Revenue, 1975-NMCA-106, 88 N.M. 411, 540 P.2d 1300, cert. denied, 89 N.M. 5, 546
P.2d 70.

Income from sale of telephone poles by paper company held business income. —
Since a multistate corporation manufactured wood and paper products from timber on
land owned or leased by it, and sold some of its logs to telephone utilities for use as
telephone poles and the sale of logs was a normal, customary procedure in the
taxpayer's business for the year in question and had been for several years, the income
arising therefrom was income arising from transactions and activity in the regular course
of the taxpayer's trade or business. Champion Int'l Corp. v. Bureau of Revenue, 1975-
NMCA-106, 88 N.M. 411, 540 P.2d 1300, cert. denied, 89 N.M. 5, 546 P.2d 70.

When coal lease sale in regular course of business. — Since taxpayer is in the
business of exploration and development of oil, gas and minerals, the sale of the coal
leases is in the regular course of this business. Tipperary Corp. v. New Mexico Bureau
of Revenue, 1979-NMCA-031, 93 N.M. 22, 595 P.2d 1212, cert. denied, 92 N.M. 675,
593 P.2d 1078.

Coal lease sale taxable. — Since taxpayer's business is unitary and since a gain from
the sale of its coal leases is business income under Subsection A of this section, this
state can tax a percentage of this income. Tipperary Corp. v. New Mexico Bureau of
Revenue, 1979-NMCA-031, 93 N.M. 22, 595 P.2d 1212, cert. denied, 92 N.M. 675, 593
P.2d 1078.

Income from coal dragline leases held business income. — Oil company's income
from its dragline leases was business income because the leases generated substantial
capital for the company's general business purposes, and the leases were ongoing,
recurring transactions constituting a regular or customary portion of company's overall
business, which contributed to the company's economic enterprise as a whole.
Kewanee Indus., Inc. v. Reese, 1993-NMSC-006, 114 N.M. 784, 845 P.2d 1238.

Income from liquidation of part of business held not business income. — Since
the taxpayer was not in the business of buying and selling pipeline equipment and the
transaction in question was a partial liquidation of taxpayer's business and a total
cessation and liquidation of one facet of the business, the sale of equipment did not
constitute an integral part of the regular trade or business operations of taxpayer and
the proceeds thereof were not business income. McVean & Barlow, Inc. v. N.M. Bureau
of Revenue, 1975-NMCA-128, 88 N.M. 521, 543 P.2d 489, cert. denied, 89 N.M. 6, 546
P.2d 71.

                       IV.    UNITARY BUSINESS PRINCIPLE.

Underlying unitary business required. — The linchpin of apportionability for state
income taxation of an interstate enterprise is the unitary-business principle. F.W.
Woolworth Co. v. Taxation & Revenue Dep't, 458 U.S. 354, 102 S. Ct. 3128, 73 L. Ed.
2d 819, reh'g denied, 459 U.S. 961, 103 S. Ct. 274, 74 L. Ed. 2d 213 (1982).

Derivation of dividend income from subsidiaries. — The potential to operate a
company as part of a unitary business is not dispositive when, looking at the underlying
economic realities of a unitary business, the dividend income from subsidiaries in fact is
derived from unrelated business activity which constitutes a discrete business
enterprise. F.W. Woolworth Co. v. Taxation & Revenue Dep't, 458 U.S. 354, 102 S. Ct.
3128, 73 L. Ed. 2d 819, reh'g denied, 459 U.S. 961, 103 S. Ct. 274, 74 L. Ed. 2d 213
(1982).

Existence of underlying unitary business. — When, except for the type of occasional
oversight - with respect to capital structure, major debt, and dividends - that any parent
gives to an investment in a subsidiary, there is little or no integration of business
activities or centralization of management of the parent company and its foreign
subsidiaries, there is no underlying unitary business that would justify the state's taxing
of dividends from the foreign subsidiaries. F.W. Woolworth Co. v. Taxation & Revenue
Dep't, 458 U.S. 354, 102 S. Ct. 3128, 73 L. Ed. 2d 819, reh'g denied, 459 U.S. 961, 103
S. Ct. 274, 74 L. Ed. 2d 213 (1982).

Multistate business may be unitary or independent. — A multistate business is a
"unitary business" for income tax purposes when operations conducted in one state
benefit and are in turn benefited by operations in another state, and if its various parts
are interdependent and of mutual benefit so as to form one integral business rather than
several business entities, it is unitary. On the other hand, if a multistate business
enterprise is conducted in a way that one, some or all of the business operations
outside New Mexico are independent of and do not contribute to the business
operations within this state, the factors attributable to the outside activity may be
excluded. Champion Int'l Corp. v. Bureau of Revenue, 1975-NMCA-106, 88 N.M. 411,
540 P.2d 1300, cert. denied, 89 N.M. 5, 546 P.2d 70.

Taxpayer must show business independent to exclude income. — Where a
multistate corporation challenged commissioner's allocation of certain interest, rent and
gains to business income, but failed to produce evidence that its business activity
outside of New Mexico was dependent or independent of its instate operations, or that
the interest, rent and gains income was not an integral part of its business carried on in
this state, no question was raised whether any of its income was nonbusiness income
because there was no evidence that its activities were not part of a unitary business,
and therefore the assessed additional corporate income tax was affirmed. Champion
Int'l Corp. v. Bureau of Revenue, 1975-NMCA-106, 88 N.M. 411, 540 P.2d 1300, cert.
denied, 89 N.M. 5, 546 P.2d 70.

Am. Jur. 2d, A.L.R. and C.J.S. references. — What constitutes trade or business
under Internal Revenue Code (U.S.C.A. Title 26), 161 A.L.R. Fed. 245.