New Mexico SB 151 Decouples from Full Expensing

A bill passed by the New Mexico legislature risks eroding the state’s corporate tax A tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. environment by rejecting key business-friendly elements of the federal One Big Beautiful Bill Act (OBBBA). It would eliminate state-level conformity with 100 percent bonus depreciation Depreciation is a measurement of the “useful life” of a business asset, such as machinery or a factory, to determine the multiyear period over which the cost of that asset can be deducted from taxable income. Instead of allowing businesses to deduct the cost of investments immediately (i.e., full expensing), depreciation requires deductions to be taken over time, reducing their value and disco for machinery and equipment under IRC Section 168(k), along with immediate expensing for qualified production property under the new Section 168(n). It would also include net CFC-tested income (NCTI) in the state’s taxable base.

Full expensing Full expensing allows businesses to immediately deduct the full cost of certain investments in new or improved technology, equipment, or buildings. It alleviates a bias in the tax code and incentivizes companies to invest more, which, in the long run, raises worker productivity, boosts wages, and creates more jobs. —commonly known as 100 percent bonus depreciation—enables companies to deduct the full cost of eligible investments in the year they are placed in service, rather than stretching those deductions across multiple years through complicated depreciation schedules. This approach minimizes distortions in investment decisions, counters the effects of inflation Inflation is when the general price of goods and services increases across the economy, reducing the purchasing power of a currency and the value of certain assets. The same paycheck covers less goods, services, and bills. It is sometimes referred to as a “hidden tax,” as it leaves taxpayers less well-off due to higher costs and “bracket creep,” while increasing the government’s spendin, and respects the time value of money, ultimately supporting stronger economic growth and higher output. It also increases the probability that projects will become immediately profitable and incentivizes high fixed-cost investments.

While adopting full expensing entails revenue costs during the initial transition period, when new immediate deductions overlap with existing assets completing their depreciation from prior investments—these effects are largely temporary. Over the medium to long term, the fiscal impact is neutral. The policy simply shifts the timing of tax payments forward. Once legacy assets complete their depreciation periods, new investments receive full upfront expensing with no subsequent deductions.

While SB 151 proposes decoupling from pro-growth tax policy, it also includes unsound tax policy by conforming to IRC Section 951A and including foreign earnings of controlled corporations (in the form of the new NCTI) in the New Mexico corporate tax base The tax base is the total amount of income, property, assets, consumption, transactions, or other economic activity subject to taxation by a tax authority. A narrow tax base is non-neutral and inefficient. A broad tax base reduces tax administration costs and allows more revenue to be raised at lower rates. —earnings that have frequently already faced taxation overseas. At the federal level, this inclusion aims to discourage profit shifting Profit shifting is when multinational companies reduce their tax burden by moving the location of their profits from high-tax countries to low-tax jurisdictions and tax havens. to low-tax foreign jurisdictions and guarantee a baseline tax on multinational income, with foreign tax credits available to prevent or mitigate double taxation Double taxation is when taxes are paid twice on the same dollar of income, regardless of whether that’s corporate or individual income. when foreign rates exceed the minimum threshold.

New Mexico, however, offers no such credit for taxes paid abroad. This creates genuine double taxation on the same foreign income, harming US-based multinationals relative to their international competitors.

The NCTI regime replaces the global intangible low-taxed income (GILTI) system. It is notable that New Mexico did not conform to the GILTI provisions of the federal revenue code, a fiscally sound stance that did not seek to tax income earned outside the United States. Taxing NCTI, however, will erode the state’s tax environment needlessly. GILTI sought to distinguish between normal and supernormal returns of above 10 percent, exempting anything below as a qualified business asset investment (QBAI) exclusion. Converting to NCTI makes the problem of states adopting GILTI in their tax base worse. It eliminates the QBAI exclusion, bringing all the corporate income under the state’s tax purview rather than just the “supernormal” returns.

Further, state-level adoption of NCTI taxation implies that foreign tax credits allowed at the federal level actually are picked up as additional income to be taxed, expanding the tax base even further. This leads to more aggressive taxation than under the GILTI regime.

Beyond lack of justification or logic, taxing NCTI or GILTI is simply inefficient. Multinational corporations may respond by restructuring operations to minimize sales apportioned to the state, perhaps through intermediaries or by shifting invoicing to affiliates in more favorable locations, thereby curtailing their corporate tax liability. Further, New Mexico’s apportionment formula also includes payroll and real property owned by the corporation. While NCTI, like GILTI previously in other states, is likely to contribute only marginally to overall state revenues—typically a negligible share—its impact can be pronounced for the very enterprises that policymakers seek to attract, such as innovative firms driving economic expansion.

In light of the federal transition from GILTI to NCTI, states currently taxing this form of international income would be wise to seize the opportunity to disengage from it entirely, and New Mexico should not use global income as a new source of revenues.

In Tax Foundation’s 2026 State Tax Competitiveness Index, New Mexico places close to the middle overall, with its corporate tax component ranking in the upper half of states. Yet SB 151, in its present form, deviates from the principles of sound corporate tax policy. It conflicts with the federal objectives behind NCTI inclusion, taxes foreign-source income beyond what the federal base captures, imposes double taxation without relief for foreign taxes paid, and disadvantages American multinationals operating in the state. Moreover, it also seeks to decouple from the pro-growth expensing provisions contained in the OBBBA, which could discourage capital investment and new business formation and expansion in the state, leaving the state less competitive compared to those states that retain conformity with the OBBBA’s expensing rules.

Lawmakers should consider pro-growth tax policies that will help recruit and retain the next generation of New Mexico residents and businesses. Unfortunately, SB 151 is a step in the wrong direction and could leave New Mexico less competitive, regionally and nationally, for some time to come.

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About the Author

Expert

Abir Mandal

Senior Policy Analyst Abir Mandal is a Senior Policy Analyst at the Tax Foundation, focused on state tax policy. Dr. Mandal holds a PhD in economics from Clemson University, where he focused on economic growth and development, trade, and econometrics.