New Mexico Bulletin B-100.37: Taxability of COVID Relief Payments

Summary

New Mexico Taxation and Revenue Department Bulletin B-100.37 (New 02/2021) explains how federal COVID relief payments are treated for New Mexico taxes. Economic Impact Payments are not subject to New Mexico personal income tax because they are not included in federal adjusted gross income. PPP loans are not gross receipts under Section 7-9-3.5 NMSA 1978, even if forgiven, and a forgiven PPP loan is not taxable income for state income tax. Most CARES Act grants, such as the City of Albuquerque's Small Business Economic Relief Grant, are not subject to gross receipts tax, and Provider Relief Fund payments to health care providers other than hospitals are exempt under Section 7-9-41.6 NMSA 1978. A grant is likely taxable as income for most recipients, with special rules for tribes and Pueblos.

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NEW MEXICO
BULLETIN
Taxability of COVID Relief Payments
The federal Coronavirus Aid, Relief, and Economic Security (CARES) Act and the Tax Relief Act of 2020
provided emergency relief to New Mexico taxpayers to address the economic impact of the COVID-19
pandemic through direct payments, loans, and grants to individuals, and to state and local governments
that then made payments, loans, and grants to individuals and businesses. This bulletin provides
guidance on the impact of the payments for New Mexico taxpayers.

ECONOMIC IMPACT PAYMENTS (EIP)

EIP are not subject to New Mexico personal income tax. The Internal Revenue Service (IRS) has provided clear
guidance that direct payments made to individuals provided through the CARES Act, called EIP, are an advance of a
credit for 2020 and therefore not included in federal gross income. New Mexico personal income tax is calculated based
upon the federal adjusted gross income (AGI). Since the payments are not included in this amount, they are not included
in New Mexico taxable income.

PAYCHECK PROTECTION PROGRAM (PPP) LOANS

Gross Receipts Tax

PPP loans are not gross receipts. PPP loans were created by the CARES Act to allow businesses to continue to pay
their workers and some overhead expenses. PPP is a loan and therefore does not meet the definition of gross receipts
found in Section 7-9-3.5 NMSA 1978. This is the case even if the loans were forgiven.

For a payment to be considered gross receipts it must result from an activity described within the definition found in
Section 7-9-3.5 NMSA 1978. As stated in statute, gross receipts are the total amount of money or the value of other
consideration received from selling property in New Mexico, from leasing or licensing property employed in New Mexico,
from granting a right to use a franchise employed in New Mexico, from selling services performed outside New Mexico
the product of which is initially used in New Mexico, or from performing services in New Mexico. Since the loans are not
gross receipts derived from these activities, they are not subject to gross receipts tax.

Income Tax

Federal rules determine whether a PPP loan is subject to income taxes. In New Mexico both personal and corporate
income tax is based on reported federal income and therefore conforms to the federal rules in determining whether these
loans are taxable. Personal income tax is determined by the federal AGI and then by allowing the standard or itemized
deductions. Corporate income tax is based upon the federal taxable income before net operating loss and special
deductions.

In both cases, PPP has been determined to be a loan that is not federal taxable income, even if forgiven, and therefore
also not taxable income for New Mexico state income taxes. The CARES Act specifically provides that a forgiven PPP
loan is not taxable. These forgiven loans, then, would not be reflected as taxable income on the New Mexico tax return.
Revenue Ruling 2021-2 issued in January 2021 by the IRS further clarified that following the passage of the Tax Relief
Act of 2020 in December 2020, expense deductions from forgiven PPP loans were also allowable.

B-100.37 New Mexico Taxation and Revenue Department
New 02/2021 P.O. Box 630
Santa Fe, NM 87504-0630
GRANTS PROVIDED AS PART OF THE CARES ACT

Gross Receipts Tax

Most grants received through CARES Act funding are not subject to gross receipts tax. For an amount of money
to be considered gross receipts the payment must be the result of an activity within the definition of gross receipts found
in Section 7-9-3.5 NMSA 1978. Receiving a grant, therefore, would normally not be considered gross receipts unless the
receipt of the grant required the recipient to perform a transaction, such as performing services. This means that most
small-business grants provided to businesses by local governments through funds made available through the CARES
Act are not included in gross receipts. The City of Albuquerque’s Small Business Economic Relief Grant, which was
funded by the CARES Act, is one such example. The city providing the grant does not require the recipient to perform a
service to receive the grant.

Furthermore, payments received by most healthcare providers from the Provider Relief Fund, created by the CARES Act,
are explicitly exempt from gross receipts tax. Section 7-9-41.6 NMSA 1978 exempts the “receipts of health care
providers, other than hospitals licensed by the department of health, from payments by the United States department of
health and human services from the federal public health and social services emergency fund to providers eligible to
receive the payments pursuant to the federal Coronavirus Aid, Relief, and Economic Security Act.” This exempts
payments made from the Provider Relief Fund to reimburse healthcare providers for expenses for providing patient care.
However, as the statute states above, this exemption does not apply to hospitals. Hospitals may have gross receipts if
the grant they received was in exchange for performing services.

Income Tax

Federal rules determine whether grant is subject to income taxes. While not subject to gross receipts tax, a grant is
likely taxable as income for most recipients. Funds a business receives through a grant would generally be considered
income, but each grant has its own rules and may have exclusions from tax in some cases. The IRS provided guidance
earlier in the year that the income provided to businesses from the CARES Act is generally taxable. If the grant money is
taxable at the federal level, it would be taxable at the state level for the same reasons of conformity provided above.
Furthermore, special rules apply to tribes and Pueblos, tribal corporations, and entities, for whom such grants are often
not subject to income taxation. Taxpayers falling into this category should seek further guidance.

B-100.37 New Mexico Taxation and Revenue Department
New 02/2021 P.O. Box 630
Santa Fe, NM 87504-0630
BULLETIN B-100.36

Tax District Field Offices and the For forms and instructions visit the
Department’s call center can provide full Department’s web site at
service and general information about the https://www.tax.newmexico.gov/
Department's taxes, taxpayer access point,
programs, classes, and forms. Information Call Center Number:
specific to your filing situation, payment 1-866-285-2996
plans and delinquent accounts.
If faxing something to a tax district field
TAX DISTRICT FIELD OFFICES office, please fax to:

ALBUQUERQUE Call Center Fax Number:
10500 Copper Ave. NE, Suite C 1-505-841-6327
Albuquerque, NM 87123
If mailing information to a tax district
SANTA FE field office, please mail to:
Manuel Lujan Senior Building
1200 S. Saint. Francis Dr. Taxation and Revenue Department
Santa Fe, NM 87505 P.O. Box 8485
Albuquerque, NM 87198-8485
FARMINGTON
3501 E. Main St., Ste N
Farmington, NM 87402 For additional contact information please
visit the Department’s website at
LAS CRUCES https://www.tax.newmexico.gov/contact-us/
2540 El Paseo Bldg. 2
Las Cruces, NM 88001

ROSWELL
400 N. Pennsylvania Ave., Ste 200
Roswell, NM 88201

General Information. FYIs and Bulletins present general information with minimum technical language.
All FYIs and Bulletins are free of charge and available through all local tax offices and on the Taxation
and Revenue Department’s website at https://www.tax.newmexico.gov/forms-publications/

This information is as accurate as possible as of the date specified on the publication. Subsequent
legislation, new state regulations and case law may affect its accuracy. For the latest information please
check the Taxation and Revenue Department’s web site at https://www.tax.newmexico.gov/.

This publication provides instructions or general information to the taxpayer. It does not constitute a
regulation or ruling as defined under Section 7-1-60, New Mexico Statutes Annotated, 1978. Taxpayers
and preparers are responsible for being aware of New Mexico tax laws and rules. Consult the
Department directly if you have questions or concerns about information provided in this Bulletin.

B-100.37 New Mexico Taxation and Revenue Department
New 02/2021 P.O. Box 630
Santa Fe, NM 87504-0630

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