New Mexico Register / Volume XXIX, Issue
20 / October 30, 2018
NOTICE OF HEARING AND PROPOSED RULES
The
New Mexico Taxation and Revenue Department proposes to amend the following rules:
Gross Receipts and Compensating Tax Act,
Section 7-9-3.4 NMSA 1978
3.2.1.11
NMAC - Construction
Gross Receipts and Compensating Tax Act,
Section 7-9-51 NMSA 1978
3.2.209.9
NMAC - Items That Are Ingredient or Component Parts - Oil Fields
3.2.209.11
NMAC - Sale of Water
3.2.209.12
NMAC - Forms and Fuel
3.2.209.13
NMAC - Welding Rods
3.2.209.14
NMAC - Paint and Painting Supplies
3.2.209.15
NMAC - Sprinkler Systems
3.2.209.18
NMAC - Windows and Doors
3.2.209.21
NMAC - Compensating Tax on Materials (repeal)
3.2.209.22
NMAC - Ingredient and Component Parts of a Construction Project
3.2.209.23
NMAC - Construction Materials Used in Nontaxable Construction Projects
3.2.209.24
NMAC - Materials Used in Nontaxable Projects (repeal)
3.2.209.26 NMAC - Materials
Used in Government or Non-Profit Projects (new)
Gross Receipts and Compensating Tax Act,
Section 7-9-54 NMSA 1978
3.2.212.10
NMAC - Construction Performed for a Governmental Agency
3.2.212.14
NMAC - Landscaping
3.2.212.21
NMAC - Government Credit or Procurement Card Purchases (repeal)
3.2.212.22
NMAC - Tangible Personal Property in Projects Financed by Industrial Revenue or
Similar Bonds
3.2.212.24
NMAC - Custom Software
Gross Receipts and Compensating Tax Act,
Section 7-9-60 NMSA 1978
3.2.218.9
NMAC - Services, Leases, Construction Services
3.2.218.11
NMAC - Sale of Meals
3.2.218.13
NMAC - Sale of Gases
3.2.218.14
NMAC - Single Member Limited Liability Company Whose Sole Member is a 501(C)(3) Organization
The
proposals were placed on file in the Office of the Secretary on October 18,
2018. Pursuant to Section 9-11-6.2 NMSA
1978 of the Taxation and Revenue Department Act, the final of the proposals, if
filed, will be filed as required by law on or about December 27, 2018.
A
public hearing will be held on the proposals on Thursday, November 29, 2018, at
10:00 a.m. in the Secretary’s Conference Room on the third floor of the Joseph
M. Montoya Building, 1100 St. Francis Drive, Santa Fe, New Mexico. Individuals with disabilities who need any
form of auxiliary aid to attend or participate in the public hearing are asked
to contact Alicia Romero at alicia.romero@state.nm.us. The Taxation and Revenue Department will make
every effort to accommodate all reasonable requests, but cannot guarantee
accommodation of a request that is not received at least 10 calendar days prior
to the scheduled hearing. Accessible
copies of the proposals are available upon request; contact the Tax Policy
Office at policy.office@state.nm.us. Comments on the proposals are invited. Comments may be made in person at the hearing
or in writing. Written comments on the
proposals should be submitted to the Taxation and Revenue Department, Director
of Tax Policy, Post Office Box 630, Santa Fe, New Mexico 87504-0630 or by email
to policy.office@state.nm.us on or before November 29, 2018, at 9:00 a.m. All written comments received by the agency
will be posted on www.tax.newmexico.gov no more than 3 business days following
receipt to allow for public review.
3.2.1.11 CONSTRUCTION:
A. Construction
service as distinguished from other services.
(1) The
term "construction" is limited to the activities, or management of
the activities, which are listed in Section 7-9-3.4 NMSA 1978 and which
physically change the land or physically create, change or demolish a building,
structure or other facility as part of a construction project.
(2) “Construction"
does not include services that do not physically change the land or physically
create, change or demolish a building, structure or other facility as part of a
construction project, even though they may be related to a construction
project. The fact that a service may be
a necessary prerequisite or ancillary to construction or a construction project
does not in itself make the service a construction service. Excluded from the meaning of
"construction" are activities such as, but not limited to: hauling to
or from the construction site, maintenance work, landscape upkeep, the repair
of equipment or appliances, laboratory work or accounting, architectural,
engineering, surveying, traffic safety or legal services. Some of these
activities may qualify as construction-related services; see Section 7-9-52
NMSA 1978.
B. Construction includes: Pursuant to Section 7-9-3.4 NMSA 1978 the
term "construction" includes the painting of structures, the
installation of sprinkler systems and the building of irrigation pipelines.
C. Construction does not include:
(1) The
term "construction" does not include the installation of carpets or
the installation of draperies, but see 3.2.209.25 NMAC.
(2) The
term “construction”, as defined in Section 7-9-3.4 NMSA 1978, does not include
leasing or renting tangible personal property, such as construction equipment,
with or without an operator but see Section 7-9-52.1 NMSA 1978 for transactions
on or after January 1, 2013.
D. Oil and gas industry construction:
(1) "Construction",
as this term is used in Section 7-9-3.4 NMSA 1978, includes the following
activities related to the oil and gas industry:
(a) building
and altering of gas compression plant facilities and pump stations, including:
clearing of property sites; excavating for foundations; building and setting
foundation forms; mixing, pouring, and finishing concrete foundations for
buildings and plant equipment on foundations; fabricating and installing
piping; installing electrical equipment, insulation, and instruments; erecting
buildings; placing sidewalks, drives, parking areas; installing storage tanks;
and dismantling equipment and reinstalling elsewhere;
(b) building
of or extension of gas-gathering pipelines, including: connecting gathering
lines to lease separators, fabricating and installing meter runs, digging
trenches, beveling pipe, welding pipe, wrapping pipe, backfilling trenches,
testing pipelines, fabricating and installing pipeline drips and installing
conduit for pipelines crossing roads or railroads;
(c) building
of or extension of product pipelines, including: building pressure-reducing
stations; connecting pipelines to storage tanks, fabricating and installing
valve assemblies, digging trenches, beveling pipe, welding pipe, wrapping pipe,
laying pipe, backfilling trenches, testing pipelines and installing conduit for
pipeline crossing roads or railroads;
(d) building
secondary-recovery systems, including: excavating and building foundations,
installing engines and water pumps, installing pipelines for water intake,
installing pipelines for carrying pressured water to input wells, installing
instruments and controls and erecting buildings;
(e) installing
lease facilities, including: installing wellheads, flow lines, chemical
injectors, separators, heater-treaters, tanks, stairways and walkways; building
foundations; and setting pump units and engines, central power units and rod
lines;
(f) demolishing pipelines, including: digging trenches to uncover pipelines,
dismantling and removing drips and meter runs, backfilling trenches, tamping
and smoothing right-of-way;
(g) increasing pipeline capacity, including: removing small
pipelines and replacing with larger lines, and digging adjoining trenches and
laying new pipelines;
(h) repairing
plant, including: replacing tubing in atmospheric condensers, replacing plugged
boiler tubing; removing cracked, broken or damaged portions of foundations and
replacing anew; replacing compressors, compressor engines, or pumps; and regrouting and realigning compressors;
(i) drilling
wells, including: drilling ratholes, excavating
cellars and pits, casing crew services, cementing services, directional
drilling, drill stem testing and fishing jobs in connection with drilling
operations;
(j) general
dirt work, including: building roads, paving with caliche or other surfacing
materials; digging pits, trenches, and disposal ponds, building firewalls and
foundation footing; and constructing pads from caliche or other materials.
(2) "Construction",
as the term is used in Section 7-9-3.4 NMSA 1978, does not include the
following activities related to the oil and gas industry:
(a) well
servicing, including: acidizing and fracturing formations; pulling and
rerunning rods or tubing; loading or unloading a well; shooting; scraping
paraffin; steaming flow lines and tubing; inspecting equipment; fishing jobs,
other than in connection with drilling operations; bailing cave-ins; reverse
circulating and resetting packers;
(b) lease
and plant maintenance, including: cleaning; weed-control; preventive care of
machinery, pipelines, gathering systems, and engines; tank cleaning; testing of
flow lines by pressure or X-ray means; cleaning lines and tubing by acid
treatment or mechanical means, or replacing and restoring machinery components;
(c) transporting equipment, including: transporting drilling
rigs, rigging-up and rigging-down, and hauling water and mud;
(d) salvaging
of materials from a "production unit", as defined in the Oil and Gas
Emergency School Tax Act, such as: killing the gas pressure, removing casing
heads, welding pull nipples on the casing, cutting or shooting casing strings,
pulling casings from the well bore, cementing to fill the abandoned well or
plug the well, filling the cellar, and welding steel pipe markers;
(e) rental
of equipment such as: power tongs, blowout preventors,
tanks, pipe racks, core barrels, integral parts of a drilling rig or integral
parts of a circulation unit, for transactions on or after January 1, 2013, see
Section 7-9-52.1 NMSA 1978;
(f) measuring, "logging" and surveying services in
connection with the drilling of an oil or gas well are construction-related
services as of January 1, 2013, see Section 7-9-52 NMSA 1978. "Logging" as that term is used in
this subsection is a method of testing or measuring an oil or gas well by
recording various aspects of the geological formations penetrated by the well.
E. Construction includes prefabricated
buildings; prefabricated versus modular buildings:
(1) The
sale of prefabricated buildings, whether constructed from metal or other
material, is the sale of construction. A
prefabricated building is a building designed to be permanently affixed to land
and manufactured (usually off-site) in components or sub-assemblies which are
then assembled at the building site.
Prefabricated buildings are not designed to be portable nor are they
capable of being relocated.
(2) A
portable building or a modular building is a building manufactured (usually
off-site) which is designed to be moveable or is capable of being relocated
and, when delivered to the installation site, generally requires only blocking,
levelling and, in the case of modular buildings, joining of modules. For the purposes of Subsection F of 3.2.1.11
NMAC, neither portable buildings, modular buildings nor
manufactured homes defined as vehicles by Section 66-1-4.11 NMSA 1978
are prefabricated buildings.
F. Construction materials and services;
landscaping:
(1) Landscaping
items, such as ornaments, rocks, trees, plants, shrubs, sod and seed, which are
sold to a person engaged in the construction business, that
are an integral part of the construction project, are construction
materials. Persons who seed, lay sod or
install landscape items in conjunction with a construction project are
performing construction services.
(2) Receipts
from selling landscaping items to, and from seeding, laying sod or installing
landscape items for, persons engaged in the construction business may be
deducted from gross receipts if the buyer delivers a nontaxable transaction
certificate to the seller as provided in Section 7-9-51 and Section 7-9-52 NMSA
1978, respectively.
G. Nontaxable transaction certificates:
(1) Nontaxable
transaction certificates are available from the department for persons who are
engaged in the construction business and performing activities, as set forth in
Sections 7-9-3.4, 7-9-52 and 7-9-52.1 NMSA 1978 to execute to providers of
construction materials, construction services, construction-related services
and lessors of construction equipment. See
3.2.201.11 NMAC for additional requirements on construction contractors to
obtain nontaxable transaction certificates.
(2) Only
persons who are licensed by the state of New Mexico as construction contractors
may apply for and execute nontaxable transaction certificates under the
provisions of Sections 7-9-51 NMSA 1978, 7-9-52 NMSA 1978, and 7-9-52.1 NMSA
1978, except that a person who performs construction activities as defined in
Section 7-9-3.4 NMSA 1978 in the ordinary course of business, and who is exempt
from the laws of the state of New Mexico requiring licensing as a contractor
may apply for and execute such certificates.
[H. Fixtures:
(1) Construction
includes the sale and installation of "fixtures" such as kitchen
equipment, library equipment, science equipment and other miscellaneous
equipment installed so that it becomes firmly attached to the realty. Fixtures are considered to be items of
tangible personal property which are necessary or essential to the intended use
of a construction project and which are so firmly attached to the realty as to
constitute a part of the construction project.
(2) Receipts
from the sale of furniture, kitchen equipment, library shelves and other
furniture or equipment sold on an assembled basis that does not become a
"fixture" is a sale of tangible personal property and not
construction.]
[I] H. Construction
materials; general:
(1) The
term "construction materials" means tangible personal property which
is intended to become an ingredient or component part of a construction
project.
(2) Tangible
personal property intended ultimately to become an ingredient or component part
of a construction project although not purchased for a specific project is
nonetheless a construction material. Example: A government agency makes bulk
purchases of asphalt which is stored by the agency for use in future road
construction or repair projects. The
asphalt is a construction material.
(3) Tools,
equipment and other tangible personal property not designed or intended to
become ingredients or component parts of a construction project are not
construction materials if such materials accidentally become part of a
construction project. Example: A workman accidentally drops a
pair of gloves and a hammer into a form into which concrete is
being poured. Because the gloves and the
hammer are not intended to be included in the concrete structure, they are not
construction materials.
[ J. Meaning of "building":
(1) As
used in Section 7-9-3.4 NMSA 1978, the noun "building" means a roofed
and walled structure designed for permanent use but excludes an enclosure so
closely combined with the machinery or equipment it supports, houses or serves
that it must be replaced, retired or abandoned contemporaneously with the
machinery or equipment.
(2) A
"building" includes the structural components integral to the
building and necessary to the operation or maintenance of the building but does
not include equipment, systems or components installed to perform, support or
serve the activities and processes conducted in the building and which are
classified for depreciation purposes as 3-year property, 5-year property,
7-year property, 10-year property or 15-year property by Section 168 of the
Internal Revenue Code or, if the Internal Revenue Code is amended to rename or
replace these depreciation classes, would have been classified for depreciation
purposes as 3-year property, 5-year property, 7-year property, 10-year property
or 15-year property but for the amendment.
(3) Example: A building may include any of
the following equipment, systems or components:
(a) elevators and escalators used in whole or in part to move
people;
(b) heating,
cooling and air conditioning systems except for air conditioning and air
handling systems and components, separately depreciated under Section 168,
installed to meet temperature, humidity or cleanliness requirements for the
operation of machinery or equipment or the manufacture, processing or storage
of products;
(c) electrical
systems except for electrical systems and components, separately depreciated
under Section 168, installed to power machinery or equipment operated as part
of the activities and processes conducted in the building and not necessary to
the operation or maintenance of the building; and
(d) plumbing
systems except for plumbing systems and components, separately depreciated
under Section 168, installed to perform, serve or support the activities and
processes conducted in the building, such as for the handling, transportation
or treatment of ingredients, chemicals, waste or water for a manufacturing or
other process.]
[9/29/1967,
12/5/1969, 3/9/1972, 3/20/1974, 7/26/1976, 6/18/1979, 11/8/1979, 4/7/1982,
5/4/1984, 4/2/1986, 11/26/1990, 3/19/1992, 1/13/1996, 11/15/1996, 5/15/1997,
9/15/1997, 3.2.1.11 NMAC - Rn & A, 3 NMAC 2.1.11, 10/31/2000; A,
12/30/2003; A, 12/14/2012; A, xx/xx/2018]
3.2.209.9 ITEMS THAT ARE INGREDIENT OR COMPONENT PARTS - OIL FIELDS:
Receipts from the sale of
casing, cement, shoes and float equipment, casing heads and well heads may be
deducted from gross receipts if the other requirements of Section 7-9-51 NMSA
1978 are met and a nontaxable transaction certificate [is issued] or
alternative evidence is provided by a well drilling company performing a
turnkey project, as these items become ingredient or component parts of the
construction project.
[12/5/1969, 3/9/1972, 11/20/1972,
3/20/1974, 7/26/1976, 6/18/1979, 4/7/1982, 5/4/1984, 4/2/1986, 11/26/1990,
11/15/1996; 3.2.209.9 NMAC - Rn, 3 NMAC 2.51.9 & A, 5/31/2001; A,
xx/xx/2018]
3.2.209.11 SALE OF WATER:
Receipts from selling water to
a construction company may be deducted from gross receipts if the sale is made
to a person engaged in the construction business who delivers a nontaxable
transaction certificate or alternative evidence and if the water becomes
an ingredient or component part of the finished product such as in concrete or
in moistening fill. However, if the water is used as merely a lubricating
agent, such as in well drilling, it is not a component part of the finished
product and [is] the receipts are not deductible.
[12/5/1969, 3/9/1972, 11/20/1972,
3/20/1974, 7/26/1976, 6/18/1979, 4/7/1982, 5/4/1984, 4/2/1986, 11/26/1990, 11/15/1996;
3.2.209.11 NMAC - Rn, 3 NMAC 2.51.11, 5/31/2001; A, xx/xx/2018]
3.2.209.12 FORMS AND FUEL:
A. Receipts from selling lumber for
forms and fuel for trucks to a person engaged in the construction business may
not be deducted from gross receipts because neither the lumber nor the fuel
actually becomes an ingredient or component part of the finished product.
However, if the form lumber is later used for sheeting in the construction
project, the form lumber may be purchased with a nontaxable transaction
certificate (nttc) or alternative evidence pursuant
to Section 7-9-51 NMSA 1978.
[B. If, in the situation described in
Subsection A of Section 3.2.209.12 NMAC, the person engaged in the construction
business delivered an nttc to a supplier for the
purchase of lumber and the buyer converts some to use as forms and if the
supplier did not pay the gross receipts tax on those receipts, the person
engaged in the construction business will be subject to the compensating tax.
C.] B. The receipts from selling screed pins used in plastering and
forms which must, by reason of design, be left in place after concrete has been
poured over them may be deducted from gross receipts if the sale is made to a
person engaged in the construction business who delivers [an] a nontaxable
transaction certificate (nttc) or alternative
evidence.
[12/5/1969, 3/9/1972, 11/20/1972,
3/20/1974, 7/26/1976, 6/18/1979, 4/7/1982, 5/4/1984, 4/2/1986, 11/26/1990, 11/15/1996;
3.2.209.12 NMAC - Rn, 3 NMAC 2.51.12 & A, 5/31/2001; A, xx/xx/2018]
3.2.209.13 WELDING RODS:
Receipts from selling welding
electrodes (welding rods), which melt to provide filler or fused metal, to a
person engaged in the construction business may be deducted from gross receipts
if the buyer delivers a nontaxable transaction certificate (nttc)
or alternative evidence to the seller [If] and the buyer
delivering the nttc [does not use] uses
the welding electrodes in such a way that they become an ingredient or
component part of the construction project [or comply with other
requirements of Section 7-9-51 NMSA 1978, compensating tax will be imposed upon
the buyer].
[3/9/1972, 11/20/1972, 3/20/1974,
7/26/1976, 6/18/1979, 4/7/1982, 5/4/1984, 4/2/1986, 11/26/1990, 11/15/1996;
3.2.209.13 NMAC - Rn, 3 NMAC 2.51.13 & A, 5/31/2001; A, xx/xx/2018]
3.2.209.14 PAINT AND PAINTING SUPPLIES:
A. The receipts from the sale of paint,
filler, thinner, varnish or similar items to a person engaged in the painting
business who delivers a nontaxable transaction certificate (nttc)
or alternative evidence to the seller may be deducted from the seller's
gross receipts.
[B. If the person engaged in the painting
business does not use the items purchased with the nttcs
as required by Paragraphs (1) and (2) of Subsection B of Section 7-9-51 NMSA
1978, the compensating tax is due.
C.] B. Receipts from the sale of brushes, sandpaper, scrapers, sand
for sandblasting, machinery and similar items used in the painting business to
persons engaged in the painting business may not be deducted from gross
receipts because such items do not become an ingredient or component part of
the construction project.
[3/9/1972, 11/20/1972, 3/20/1974,
7/26/1976, 6/18/1979, 4/7/1982, 5/4/1984, 4/2/1986, 11/26/1990, 11/15/1996;
3.2.209.14 NMAC - Rn, 3 NMAC 2.51.14 & A, 5/31/2001; A, xx/xx/2018]
3.2.209.15 SPRINKLER SYSTEMS:
Receipts from selling pipes,
joints, nozzles and similar items of tangible personal property which become
ingredient or component parts of a sprinkler system to a person engaged in the
business of selling and installing sprinkler systems may be deducted from gross
receipts if the buyer delivers a nontaxable transaction certificate or
alternative evidence.
[3/9/1972, 11/20/1972, 3/20/1974,
7/26/1976, 6/18/1979, 4/7/1982, 5/4/1984, 4/2/1986, 11/26/1990, 11/15/1996;
3.2.209.15 NMAC - Rn, 3 NMAC 2.51.15, 5/31/2001]
3.2.209.18 WINDOWS AND DOORS:
A. Receipts from the sale
of screens, screen doors and windows to a person engaged in the construction
business may be deducted from the seller's gross receipts if the buyer delivers
a nontaxable transaction certificate (nttc) or
alternative evidence and the person engaged in the construction business uses
the screens, screen doors and windows in the manner described in Paragraphs (1)
and (2) of Subsection B of Section 7-9-51 NMSA 1978.
[B. If the
person engaged in the construction business does not use the screens, screen
doors and windows purchased with the nttc as required
by Paragraphs (1) and (2) of Subsection B of Section 7-9-51 NMSA 1978, the
compensating tax is due.
C.] B. Receipts
from the sale of aluminum panel, aluminum T bar, aluminum angle, bulk or roll
screen stock and jalousie glass to a person who produces screens, screen doors
or windows and sells them installed in a construction project may be deducted
from the seller's gross receipts pursuant to Section 7-9-51 NMSA 1978 if the
buyer delivers an nttc or alternative evidence.
[ D. If the
person engaged in the construction business does not use the items described in
Subsection C of Section 3.2.209.18 NMAC and purchased with the nttc as required by Paragraphs (1) and (2) of Subsection B
of Section 7-9-51 NMSA 1978, the compensating tax is due.]
[3/9/1972, 11/20/1972, 3/20/1974,
7/26/1976, 6/18/1979, 4/7/1982, 5/4/1984, 4/2/1986, 11/26/1990, 11/15/1996;
3.2.209.18 NMAC - Rn, 3 NMAC 2.51.18 & A, 5/31/2001; A, xx/xx/2018]
3.2.209.22 INGREDIENT AND COMPONENT PARTS OF A CONSTRUCTION PROJECT:
In determining whether
tangible personal property will become an ingredient or component part of a
construction project, the department will use the following criteria, but not
exclusively:
[A. Did
the tangible personal property become “fixtures” as defined under Subsection I
of Section 3.2.1.11 NMAC.
B.] A. Was the person performing the work using the tangible
personal property required to be licensed under the Construction Industries
Licensing Act, Sections 60-13-1 to 60-13-59 NMSA 1978.
[C.] B. Did the work for which the
tangible personal property was used require a permit from one or more of the
trade boards established by the Construction Industries Licensing Act or from a
municipal building or mechanical department.
[6/18/1979, 4/7/1982, 5/4/1984,
4/2/1986, 11/26/1990, 11/15/1996; 3.2.209.22 NMAC - Rn, 3 NMAC 2.51.22 & A,
5/31/2001; A, xx/xx/2018]
3.2.209.23 CONSTRUCTION
MATERIALS USED IN NONTAXABLE CONSTRUCTION PROJECTS:
A. A seller of [tangible
personal property] construction material may not claim the deduction
from gross receipts provided by Section 7-9-51 NMSA 1978, or accept a
nontaxable transaction certificate (NTTC) in good faith as required by Section
7-9-43 NMSA 1978, when the seller can reasonably determine that the [tangible
personal property] construction material sold will be incorporated
into a construction project which will not be subject to gross receipts tax
upon completion because it is located outside New Mexico.
B. A seller can reasonably
determine that a project is located outside New Mexico when the seller has
documents identifying the location of the project.
C. No construction project
located outside New Mexico will be subject to gross receipts tax upon
completion.
[ D. This
version of 3.2.209.23 NMAC applies retroactively to transactions occurring on
or after March 7, 2000.]
[1/24/1986, 4/2/1986, 11/26/1990,
11/15/1996, 3.2.209.23 NMAC - Rn & A, 3 NMAC 2.51.23, 10/31/2000; A,
xx/xx/2018]
3.2.209.26 MATERIALS
USED IN GOVERNMENT OR NON-PROFIT PROJECTS:
Receipts from the sale to a
person engaged in the construction business who delivers a nontaxable
transactions certificate or alternative evidence to the seller of construction
materials that are tangible personal property, whether removable or non-removable,
that is or would be classified for depreciation purposes as three-year
property, five-year property, seven-year property or 10-year property by
Section 168 of the Internal Revenue Code of 1986 as that section may be amended
or renumbered, may be deducted if the construction material will ultimately be
deductible pursuant to Section 7-9-54 or 7-9-60 NMSA 1978 provided that the
remaining construction services portion of the project is subject to gross
receipts tax.
[3.2.209.26 NMAC - N,
xx/xx/2018]
3.2.212.10 CONSTRUCTION
PERFORMED FOR A GOVERNMENTAL AGENCY:
A. [The] Except
as provided in Paragraph B, receipts from performing a construction project
for a governmental agency are receipts derived from performing a service and
are not deductible pursuant to Section 7 9 54 NMSA 1978. The deduction is not available whether the
materials are billed separately on the same contract as the construction
services or are billed under a separate contract.
[ B. Example: M, a construction company, contracts to build
a building for the New Mexico general services department. M fails to include
in its contract the cost of the gross receipts tax and therefore does not
report the tax. After the tax has been assessed, M, in a hearing before the
department, contends that it does not owe the tax. M says:
(1) that
the tax is not applicable because, if it were, it would only mean that M would
include the applicable tax in making its bid; that it would then pay the tax
and bill the state the cost of the tax which only results in taking money from
one state fund and putting it in another, a useless process;
(2) that it is
actually selling tangible personal property to the state in the form of the
materials which make up the building. The answer to M's first contention is
simply that the law does not allow such a deduction. This is true even though
the effect of the tax is simply to transfer money from one state fund to
another. The answer to the second contention is that the law specifically bars
application of the deduction provided by Section 7 9 54 NMSA 1978 for receipts
from selling construction materials, whether separately stated under a contract
for construction services or billed under a contract for materials only. Even
absent the specific prohibition, the deduction is applicable only upon the sale
of tangible personal property to the state. By definition M is selling the
state a service. The gross receipts derived from performing the service for the
state are not deductible, and it is of no consequence that construction
materials may be billed separately.
C. Section
3.2.212.10 NMAC applies to transactions occurring on or after July 1, 1989.]
B. Receipts from the sale of
construction material that is tangible personal property, whether removable or
non-removable, that is or would be classified for depreciation purposes as
three-year property, five-year property, seven-year property or 10-year
property, including indirect costs related to the asset basis, by Section 168
of the Internal Revenue Code of 1986, as that section may be amended or
renumbered, are deductible. The amount
of the deduction is the asset basis, as those terms are defined by the Internal
Revenue Code of 1986, as that code may be amended or renumbered.
C. Example: A contractor enters a contract with a
municipality to construct a building and to furnish and equip it. Construction is a service, and receipts from
selling construction, including construction materials except for certain
tangible personal property, are not deductible under Section 7-9-54 NMSA
1978. An analysis is performed to
distinguish the value of the construction, construction materials and tangible
personal property included in the project.
The contractor’s receipts from the sale of tangible personal property,
whether removable or non-removable, that is or would be classified for
depreciation purposes as three-year property, five-year property, seven-year
property or 10-year property including the indirect costs related to the asset
basis, pursuant to Section 168 of the Internal Revenue Code, as that section
may be amended or renumbered, are deductible provided the analysis includes
sufficient information to demonstrate that the requirements of Section 7-9-54
NMSA 1978 are met.
[9/29/1967, 12/5/1969, 3/9/1972,
11/20/1972, 3/20/1974, 7/26/1976, 6/18/1979, 4/7/1982, 5/4/1984, 4/2/1986, 11/26/1990,
11/15/1996; 3.2.212.10 NMAC - Rn & A, 3 NMAC 2.54.10, 5/31/2001; A,
xx/xx/2018]
3.2.212.14 LANDSCAPING:
A. Except when the
landscape items are part of a construction project, receipts from selling and
installing landscape items such as plants, shrubs, sod, seed, trees, rocks and
ornaments are receipts from the sale of tangible personal property. Therefore, the receipts from the sale and
installation of these landscape items pursuant to a contract with a
governmental agency may be deducted from gross receipts pursuant to Section 7 9
54 NMSA 1978. Receipts from selling and
installing these landscape items as part of a construction project may not be
deducted pursuant to Section 7 9 54 NMSA 1978. This version of Subsection A
of Section 3.2.212.14 NMAC applies to transactions occurring on or after [July
1, 2000] March 2, 2018.
B. Receipts from the
installation of sprinkler systems are receipts from the performance of a
service and are not receipts from selling tangible personal property. Therefore, receipts from the installation of
sprinkler systems for a governmental agency may not be deducted from gross
receipts pursuant to Section 7 9 54 NMSA 1978.
[3/9/1972, 11/20/1972, 3/20/1974,
7/26/1976, 6/18/1979, 4/7/1982, 5/4/1984, 4/2/1986, 11/26/1990, 11/15/1996,
3.2.212.14 NMAC - Rn & A, 3 NMAC 2.54.14, 10/31/2000; A, xx/xx/2018]
3.2.212.22 TANGIBLE
PERSONAL PROPERTY IN PROJECTS FINANCED BY INDUSTRIAL REVENUE OR SIMILAR BONDS:
A. For the purposes of
this section, a “bond project” is an arrangement entered into under the
authority of the Industrial Revenue Bond Act, the County Industrial Revenue
Bond Act or similar act in which a private person agrees:
(1) to arrange for the constructing and
equipping of a facility for a state or local government by acting as agent for
the government in procuring construction services, other services, tangible
personal property which becomes an ingredient or component part of a
construction project and other tangible personal property necessary for
constructing and equipping the facility;
(2) to lease the
completed facility from the government; and
(3) to buy the
facility upon repayment of the bonds. The
government agrees to own the facility, to finance the project in whole or in
part through the issuance of bonds, to designate the private person as its
agent in procuring the necessary property and services, to lease the facility
to the private person and to sell the facility to the private person upon
repayment of the bonds.
B. Receipts from the sale
of tangible personal property to the private person who is acting as agent for
the government with respect to the bond project are deductible under Section 7
9 54 NMSA 1978 if the tangible personal property is not [an ingredient or
component part of a construction project] construction material
excluding tangible personal property whether removable or non-removable, that
is or would be classified for depreciation purposes as three-year property,
five-year property, seven-year property or 10-year property, including indirect
costs related to the asset basis, by Section 168 of the Internal Revenue Code
of 1986, as that section may be amended or renumbered. To be deductible, [the cost of the bond
project tangible personal property must meet all of the following criteria:
(1) ] the cost of the bond project tangible
personal property [does] must not increase the basis, as
determined under the provisions of Section 1011 of the Internal Revenue Code in
effect on the date the bond project commences, of the structure or other
facility included in the definition of construction [and
(2) the
tangible personal property is:
(a) not
included in, or similar to, the list of structures and facilities specifically
itemized in the definition of construction at Section 7 9 3 NMSA 1978; and
(b) classified for
depreciation purposes as 3-year property, 5-year property, 7 year property,
10-year property or 15 year property by Section 168 of the Internal Revenue
Code in effect on the date the bond project commences or, if the Internal
Revenue Code is amended to rename or replace these depreciation classes, would
have been classified for depreciation purposes as 3 year property, 5-year
property, 7 year property, 10-year property or 15 year property but for the
amendment.]
C. A bond project
commences when the governing body of the state or local government takes
official action to enter into the arrangement, but no earlier than the adoption
of an inducement resolution.
[ D. Receipts from the sale of
tangible personal property which becomes an ingredient or component part of a
construction project, whether the sale is to the private person acting as agent
for the government or to the government itself, are not deductible under Section
7 9 54 NMSA 1978.]
D. This version of 3.2.212.22 NMAC
applies to transactions occurring on or after March 2, 2018.
[2/22/1995, 11/15/1996;
3.2.212.22 NMAC - Rn & A, 3 NMAC 2.54.22, 5/31/2001; A, xx/xx/2018]
3.2.212.24 CUSTOM
SOFTWARE:
A. Because it is a
service, receipts from developing or selling custom software for governmental
entities are not deductible under Section 7 9 54 NMSA 1978.
B. Example 1: X contracts with the United States to develop
software to test certain devices which the United States is considering
purchasing. X is performing a service under this contract.
C. Example 2: Same facts as in Example 1 except that X is
to modify an existing software test program. X is nonetheless performing a
service under the contract.
D. Example 3: X enters into a qualifying research and
development contract with a signatory agency of the United States. The contract
is to develop software to test certain devices which the United States is
considering purchasing. X is performing
a service under this contract. To create
the testing program X buys several pieces of packaged software and develops new
programming to interconnect the packaged software into a coherent testing
program. X may execute, and the vendors
may accept in good faith, Type 15 [nttcs] nontaxable
transaction certificates or alternative evidence as provided by Section 7-9-43
NMSA 1978 for the purchase of the packaged software.
[4/30/1997; 3.2.212.24 NMAC -
Rn & A, 3 NMAC 2.54.24, 5/31/2001; A, xx/xx/2018]
3.2.218.9 SERVICES,
LEASES, CONSTRUCTION SERVICES
A. Receipts from services
performed for and from leases entered into with 501(c)(3)
organizations are [fully taxable. Such receipts are] not deductible
pursuant to Section 7-9-60 NMSA 1978. [Only
receipts from selling tangible personal property to a 501(c)(3)
organization are deductible.]
B. [Receipts] Except
as provided in Paragraph C, receipts from [performing a construction
project for] selling construction, including construction material to
a 501(c)(3) organization, [including the
construction services and the value of all property used in the construction
project,] are receipts derived from performing a service and are [fully
taxable.] not eligible for the deduction pursuant to Section 7-9-60 NMSA
1978.
C. Receipts from selling construction
material that is tangible personal property, whether removable on
non-removable, that is or would be classified for depreciation purposes as
three-year property, five-year property, seven-year property or 10-year
property, including indirect costs related to the asset basis, by Section 168
of the Internal Revenue Code of 1986, as that section may be amended or
renumbered, may be deducted from gross receipts when the sale is made to a
501(c)(3) organization.
[3/16/1979, 6/18/1979, 4/7/1982,
5/4/1984, 4/2/1986, 11/26/1990, 11/15/1996; 3.2.218.9 NMAC - Rn, 3 NMAC 2.60.9
& A, 6/14/01; A, xx/xx/2018]
3.2.218.11 SALE OF MEALS:
Meals are tangible personal
property. Therefore receipts from
selling meals to a 501(c)(3) organization are receipts
from selling tangible personal property. Such receipts may be deducted from gross
receipts under Section 7 9 60 NMSA 1978 if the organization delivers a properly
executed Type 9 [nttc with] nontaxable
transaction certificate or alternative evidence to the seller. Sales of meals directly to members of a 501(c)(3) organization may not be deducted under Section 7 9 60
NMSA 1978 even if the meals are served at a function of the organization. The 501(c)(3)
organization is an entity distinct from its members.
[10/29/1999; 3.2.218.11 NMAC -
Rn, 3 NMAC 2.60.11 & A, 6/14/2001, xx/xx/2018]
3.2.218.13 - SALE OF GASES:
Gases, such as natural gas,
nitrogen, carbon dioxide, helium, oxygen, propane, acetylene and nitrous oxide,
are tangible personal property. Therefore
receipts from selling gases to a 501(c)(3) organization may be deducted from
gross receipts under Section 7 9 60 NMSA 1978 if the organization delivers a
properly executed [nttc] nontaxable
transaction certificate or alternative evidence to the seller.
[3.2.218.13 NMAC - N, 3/15/2010;
A, xx/xx/2018]
3.2.218.14 SINGLE MEMBER
LIMITED LIABILITY COMPANY WHOSE SOLE MEMBER IS A 501(c)(3)
ORGANIZATION:
A. A single member limited
liability company (llc) whose sole member is a
501(c)(3) organization will be treated like a 501(c)(3) organization and
receive the same treatment for purposes of Section 7-9-60 NMSA 1978 so long as
the llc is recognized by the internal revenue service
as a disregarded entity for federal income tax purposes.
B. Receipts from the sale
of tangible personal property to an llc described in
Subsection A above when the property is employed in
the conduct of an unrelated trade or business as defined in Section 513 of the
Internal Revenue Code of 1986, as amended or renumbered, are not deductible
pursuant to Subsection A of Section 7-9-60 NMSA 1978. If the llc, or its
501(c)(3) single member, delivering the [nttc] nontaxable transaction certificate or
alternative evidence employs the tangible personal property in the conduct
of an unrelated trade or business, the [compensating tax is due.] llc, or its 501(c)(3) single member, is liable
for the seller’s gross receipts tax plus penalty and interest pursuant to
Section 7-9-43 NMSA 1978.
[3.2.218.14 NMAC - N, 1/15/2015;
A, xx/xx/2018]