Experts warn: NM tax changes poised to make state even less competitive

A newly signed New Mexico tax law is drawing criticism from tax policy experts, who warn it could weaken the state’s business climate and make it less attractive for investment.

In a March 11 analysis published by the Tax Foundation, Senior Policy Analyst Abir Mandal cautioned that Senate Bill 151, recently approved by the Legislature and signed into law, contains several provisions that could undermine New Mexico’s tax competitiveness.

Mandal wrote that the measure “contains elements that would make the state’s tax climate less competitive,” particularly by separating the state’s tax code from federal policies designed to encourage investment and economic growth.

One of the primary concerns highlighted in the analysis involves the law’s treatment of full expensing, commonly known as 100 percent bonus depreciation. Under federal tax rules, businesses can deduct the full cost of eligible investments—such as machinery and equipment—in the year those investments are made, rather than spreading deductions across several years.

According to the Tax Foundation, this policy plays a key role in encouraging capital investment and economic expansion.

“Full expensing enables companies to deduct the full cost of eligible investments in the year they are placed in service,” Mandal wrote. He noted that the policy helps “minimize distortions in investment decisions, counter the effects of inflation, and respect the time value of money,” all of which can contribute to stronger economic growth.

However, SB 151 eliminates New Mexico’s conformity with federal provisions under Sections 168(k) and 168(n) of the Internal Revenue Code, which currently allow businesses to immediately expense certain investments.

The Tax Foundation warns that by decoupling from those federal provisions, New Mexico may discourage businesses from investing in equipment and production facilities within the state.

The report also explains that while full expensing can reduce tax revenues in the short term during the transition period, the long-term fiscal impact is typically neutral because the policy simply changes the timing of deductions rather than eliminating them.

In addition to concerns about expensing rules, Mandal’s analysis points to another provision in the new law that involves international corporate income.

SB 151 requires companies to include net CFC-tested income (NCTI)—foreign earnings from controlled corporations—in New Mexico’s corporate tax base. While similar rules exist at the federal level to prevent profit shifting to low-tax jurisdictions, the federal tax code also allows companies to claim foreign tax credits to avoid double taxation.

New Mexico’s system does not offer such credits.

“This creates genuine double taxation on the same foreign income, harming U.S.-based multinationals relative to their international competitors,” Mandal wrote in the Tax Foundation report.

The analysis also notes that New Mexico previously declined to conform to federal Global Intangible Low-Taxed Income (GILTI) provisions. Mandal described that earlier decision as “a fiscally sound stance that did not seek to tax income earned outside the United States.”

By including NCTI in the state tax base, the new law expands the taxation of foreign corporate income and could increase tax burdens on companies with international operations.

The Tax Foundation also warns that multinational corporations may respond by restructuring their business operations in ways that reduce their exposure to New Mexico taxes—such as shifting sales attribution or invoicing through affiliates in other jurisdictions.

Although taxing foreign income generally produces only modest revenue for states, the report suggests it can disproportionately impact large companies and the types of firms that policymakers often seek to attract.

“Innovative firms driving economic expansion” could face higher tax burdens under the policy, Mandal wrote.

New Mexico currently ranks roughly in the middle of states overall in the Tax Foundation’s 2026 State Tax Competitiveness Index, though its corporate tax structure performs somewhat better than average.

According to Mandal, the changes enacted in SB 151 could threaten that standing.

“SB 151, in its present form, deviates from the principles of sound corporate tax policy,” he wrote, warning that the law could leave New Mexico less competitive than states that continue to follow federal pro-investment tax policies.

Mandal concluded that policymakers should focus on policies that promote economic growth and investment in the state.

“Lawmakers should consider pro-growth tax policies that will help recruit and retain the next generation of New Mexico residents and businesses,” he wrote. “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.”