New Mexico Register / Volume XXI, Number 24 / December 30, 2010

 

This is an amendment to 3.3.12 NMAC, Section 14 effective 12/30/2010.

 

3.3.12.14                 [COMPOSITE RETURNS FOR OWNERS OF PASS-THROUGH ENTITIES

                A.            For the purposes of 3.3.12.14 NMAC:

                    (1)     "authorized representative" means any of the qualifying owners, the entity the qualified owner is an owner of or the entity's or the qualifying owners' contractor or agent authorized to file composite returns for the qualified owners;

                    (2)     "entity" means a partnership which has not elected to be taxed for federal income tax purposes as a corporation, a limited liability company which is not taxed as a corporation for federal income tax purposes or an S corporation;

                    (3)     "owner" means an individual who is a partner in a partnership which has not elected to be taxed for federal income tax purposes as a corporation, a shareholder in an S corporation or a member of a limited liability company which is not taxed as a corporation for federal income tax purposes; and

                    (4)     "qualifying owner" means an owner who is a not a resident of New Mexico and who has no income from New Mexico sources (including spouse's income on a joint return) other than the owner's share of the entity's income from New Mexico or the owner's share of income from New Mexico of other entities, the income from which is reported on composite returns.

                B.            Qualifying owners of a qualifying entity may elect to have the entity file a composite income tax return on behalf of certain individual owners with prior approval of the department on a form prescribed by the secretary. The filing of a composite return by the entity is in lieu of the filing of individual personal income tax returns by each owner included in the return and if properly completed the filing of the composite return shall fulfill the filing requirement for each owner qualified to be included in, and included in, the return.

                C.            An entity may file a composite return on behalf of its qualified owners if the following conditions are met:

                    (1)     the entity assumes responsibility for payment of any liability of each qualified owner included in the composite return for income tax due to New Mexico for the taxable year for which the return is filed.

                    (2)     all qualified owners included in the composite return report, for federal income tax purposes, on the same fiscal year basis as the fiscal year for which the composite return is being reported.

                D.            The entity shall exclude from the composite filing any owner who is a resident of New Mexico or who is a nonresident of New Mexico having income from other sources within New Mexico, including any income of a spouse.

                E.             Corporations shall always be excluded from composite returns filed by any entity. Corporations which are partners in a partnership or members of a limited liability company which partnership or company derives income from New Mexico sources must file, in accordance with the Corporate Income and Franchise Tax Act, a New Mexico corporate income and franchise tax return and must include all sources of income, including income from the partnership or limited liability company, in that return.

                    (1)     A partnership which has elected to report for federal income tax purposes as a corporation may not file composite returns. Each partner of such a partnership shall file separate individual or corporate income tax returns for New Mexico.

                    (2)     A limited liability company which is taxed as a corporation for federal income tax purposes may not file composite returns. Each member of such a company shall file separate individual or corporate income tax returns for New Mexico.

                F.             The following requirements must be met for an authorized representative to file a composite return on behalf of qualifying owners of an entity:

                    (1)     All qualifying owners included in the composite return must authorize in writing the authorized representative to file the New Mexico income tax return on their behalf.

                    (2)     No qualifying owner may be included in a composite return if that owner files an individual New Mexico income tax return for the same taxable year for which the composite return is filed. A qualifying owner may be included in more than one composite return if the qualifying owner has income from more than one entity and does not file an individual New Mexico income tax return for that same year.

                    (3)     The composite return must be accompanied by the following information for each owner of the entity, whether included or excluded from the composite return:

                              (a)     the name of each owner;

                              (b)     the owner's address;

                              (c)     the owner's social security number;

                              (d)     the income distributed to the owner;

                              (e)     the owner's percentage of ownership in the entity; and

                              (f)     a statement of whether the owner is included or excluded from the composite return.

                    (4)     The composite return shall be filed under the name of the entity and shall not be filed under the name of any individual owner.

                    (5)     The entity shall allocate and apportion to New Mexico the income of each owner included in the composite return in accordance with the provisions of the Uniform Division of Income for Tax Purposes Act and the regulations and instructions of the department under the Income Tax Act and under the Uniform Division of Income for Tax Purposes Act. The sum of the income allocable to New Mexico plus the income apportionable to New Mexico shall be divided by the entity's total income. The result, carried to four places in decimal form, will be referred to hereinafter as the "New Mexico ratio".

                    (6)     With respect to taxable years beginning on or after January 1, 1998, to determine the amount due for an owner included in the composite return, apply a rate equal to the maximum bracket rate set by Section 7-2-7 NMSA 1978 to the distribution of entity income to the owner without allowance for exemptions, deductions or rebates of any kind other than the deduction for interest from investments in obligations of New Mexico, the United States or other jurisdictions which states are prohibited from taxing by the laws of the United States. The resulting tax shall be multiplied by the New Mexico ratio. The amount due on the composite return shall be the aggregate amount due for all of the owners included on the return.

                G.            If it is determined that an individual owner who was previously included in one or more composite returns had income from sources in New Mexico other than that reported in the composite return or returns, that owner shall file an amended individual income tax return for each year in which the owner was included in a composite return and had income from sources in New Mexico other than that included in the composite return or returns. The individual owner shall receive credit against the tax due on the filing of the owner's amended individual income return for the owner's share of any income tax actually paid to this state with the composite return.

                H.            The filing of a composite income tax return does not relieve any owner included in the return from any liability for income tax due this state unless the tax due from the individual has actually been paid with the filing of the composite return.] [RESERVED]

[8/30/95, 1/15/97, 12/15/98, 7/30/99; 3.3.12.14 NMAC - Rn & A, 3 NMAC 3.12.14, 12/14/00, A, 10/31/05; Repealed, 12/30/10]