Statutory Clarification Allows Organizations with Qualifying Property in New Mexico to Benefit from Cost Segregation Studies

On March 2, 2018, the Governor of New Mexico, Susana Martinez, signed House Bill 245 into law. The new legislation clarifies the types of tangible personal property that may be deducted from gross receipts tax on sales to government and not-for-profit entities as well as those with industrial revenue bonds (IRBs).

Under the revised definition, government entities, not-for-profit entities, and private companies with IRBs can once again use cost segregation studies to reduce the cost of their construction projects in New Mexico. This cost savings is accomplished by segregating the tangible personal property from a construction project, allowing the qualifying tangible property involved with the project to be deducted from New Mexico gross receipts tax.

What’s Changing

House Bill 245 clarifies what had been a long-standing position of the New Mexico Taxation and Revenue Department based on an existing regulation and the departments’ previous treatment of these types of tangible personal property. Aggressive reversal of that position by the department since 2014 had put a temporary halt to deductions based on cost segregation studies.

This clarification in statute will allow these studies to once again be used to segregate personal property.

The new definitions apply to New Mexico Statutes 7-9-54 and 7-9-60. Each of the statutes now state the exclusion of the deduction for the sale of construction material doesn’t apply to “tangible personal property, whether removable or non-removable, that is or would be classified for depreciation purposes as three-year, five-year, seven-year or ten-year property, including indirect costs related to the asset basis, by Section 168 of the Internal Revenue Code of 1986.” 

We’re Here to Help

If you’d like more information about how this change may affect your organization or if you’d like to learn more about cost segregation studies, contact your Moss Adams professional. You can also visit mossadams.com/costseg or email creditsandincentives@mossadams.com.