New Mexico R&D Tax Credits

State and Federal Credits Available

Basic Credit on qualified expenditures

10%

Rural Rate doubles basic/ additional

Payroll Bonus for $75K growth/ $1M QREs

Refundable

Small Biz excess additional credits

The Technology Jobs and Research and Development Tax Credit, governed by the New Mexico Taxation and Revenue Department under NMSA §§ 7-9F-1 to 7-9F-13, incentivizes businesses to conduct qualified research at facilities within the state. This program provides a basic credit against gross receipts, compensating, and withholding taxes, plus an additional credit against income taxes for meeting payroll growth benchmarks, doubling rates for rural locations to promote innovation in technology, manufacturing, and other sectors.

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Basic Credit on qualified expenditures

10%

Rural Rate doubles basic/additional

Payroll Bonus for $75K growth/$1M QREs

Refundable

Small Biz excess additional credits

Key Highlights

5% basic credit on qualified New Mexico expenditures (10% in rural areas); caps at $5M QREs annually
Additional 5% credit tied to payroll increases (10% rural), applied against income tax
Refundable provisions for qualified small businesses (<50 employees, ≤$5M QREs) on excess additional credits only
Offsets gross receipts, compensating, and withholding taxes (basic, not exceeding combined liability); income taxes (additional)
Available to C corps, S corps, partnerships, and LLCs; requires pre-approval via Form RPD-41385
Applies only to research performed at qualified New Mexico facilities; uses state-specific qualified research definition

Who Qualifies

Credits are available to taxpayers conducting qualified research, defined under NMSA 7-9F-3(D) as experimental or laboratory activities to develop or improve a product, manufacturing process, or software, at a qualified facility in New Mexico. Eligibility hinges on entity type, location, and expenditure limits, with mandatory application and auditor review.

Eligible Entities

C Corporation May claim both the regular and basic research credit
S Corporation Limited entity-level use; can pass credits to shareholders
Partnerships / LLCs Credits pass through to owners via Schedule K-1

Qualified Research Expenses (QREs)

How to Calculate the New Mexico R&D Tax Credit

New Mexico uses a straightforward percentage-based method on qualified expenditures, with doublings for rural locations and an additional layer for payroll growth. Calculations apply only to NM-sourced QREs up to $5M annually; no incremental base or fixed-base percentage is required. Pre-approval via Form RPD-41385 is mandatory before claiming on Form RPD-41386.

Regular Method

Determine total qualified New Mexico expenditures for the tax year (capped at $5M).
Identify if the qualified facility is in a rural area (per TRD: counties with 200,000 population excluding Bernalillo, Doña Ana, and Santa Fe counties, or TRD-designated economically distressed areas).
Calculate basic credit = 5% × qualified expenditures (or 10% if rural).
Apply against gross receipts, compensating, or withholding taxes due (cannot exceed the sum of those three taxes combined).

Example Calculation

Qualified Expenditures = $2,000,000 (non-rural facility)

Basic Credit = 5% × $2,000,000 = $100,000

If rural: 10% × $2,000,000 =$200,000

Additional Credit Method

Confirm payroll increase: Base payroll from prior year at the qualified facility; must grow by at least $75,000 per $1M of qualified expenditures claimed.
Calculate additional credit = 5% × qualified expenditures (or 10% if rural), but only for the portion meeting the payroll benchmark.
Compute excess QREs = current QREs - base amount.
Apply against personal or corporate income tax due (cannot exceed income tax liability; half for married filers).

Example Calculation

Qualified Expenditures = $2,000,000

Payroll Increase at Qualified Facility = $200,000 (meets $150K benchmark for $2M)

Additional Credit = 5% × $2,000,000 = $100,000 (non-rural)

Total Credit (Basic + Additional) = $200,000

If rural and payroll met: $400,000 total

Important:For qualified small businesses (50 employees, ≤$5M QREs), the additional credit offsets up to 50% of income tax liability, with excess refunded. Applications due within 1 year of expenditure year-end (e.g., Dec 31, 2025, for 2024). Your credit election is made annually on your return and generally may not be changed once filed without TRD approval. Gross receipts exclude local options; use NM-sourced data only.

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New Mexico-Specific Rules

New Mexico's program emphasizes job creation and rural development through tiered incentives, pre-approvals, and small business refunds, distinct from federal rules.

Rural Bonus

Facilities in rural areas (counties with 200,000 population excluding Bernalillo, Doña Ana, and Santa Fe, or TRD-designated distressed areas) double rates to 10% basic + 10% additional, supporting innovators outside major urban centers.

Rural Bonus

Payroll Benchmarks

Additional 5% (10% rural) requires $75K payroll growth per $1M QREs over prior-year base at the qualified facility; ties credits to employment impacts.

Other important rules

Pre-Approval Certification: All claims require Form RPD-41385 submission and TRD auditor review; attachments include expense summaries and project descriptions.
Audit Guidelines: 4-year record retention; TRD conducts post-approval audits, focusing on payroll verification and in-state work
Pass-Through Treatment: Entities allocate via Form RPD-41387; unitary groups report combined but claim separately.
Expenditure Cap: $5M annual limit per taxpayer.

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New Mexico R&D Tax Credits Case Study

Real results from a New Mexico biotech startup

$150,000

total state R&D tax credits earned

40%

rural bonus applied

$375,000

total R&D tax credits earned (federal + state combined)

Frequent Asked Questions

What is the New Mexico R&D tax credit?

The Technology Jobs and R&D Tax Credit is 5% of qualified research expenses (10% in rural areas) for small businesses, offsetting gross receipts and withholding taxes. Contact Strike Tax to maximize your savings.

What activities qualify for New Mexico’s R&D tax credit?

Activities must meet federal IRC § 41 criteria and be conducted in New Mexico, including research to improve products or processes. Strike Tax can identify qualifying projects.

How much can my business save with New Mexico’s R&D tax credit?

For $2M in QREs with payroll growth (non-rural), you could save $200,000 state credits, plus federal. Rural firms double to $400,000. Use Strike Tax’s R&D Credit Calculator for personalized estimates.

Are New Mexico R&D tax credits refundable for small businesses?

Yes, qualified small businesses (<50 employees, ≤$5M QREs) get refunds on excess additional credits after 50% income tax offset. Basic credits are nonrefundable and carry forward 3 years. Strike Tax maximizes refund eligibility.

How do I apply for New Mexico’s R&D tax credit?

Submit Form RPD-41385 for pre-approval within 1 year of expenditure year-end, then claim via RPD-41386. Pass-throughs use RPD-41387. Strike Tax handles documentation and filing for compliance.

Can New Mexico businesses claim both state and federal R&D credits?

Yes, stack state and federal credits on the same NM QREs for amplified savings. Strike Tax optimizes dual claims, including federal payroll offsets for startups.

What qualifies as a rural area for New Mexico’s doubled R&D rates?

Rural areas include counties with <200,000 population (excluding Bernalillo, Doña Ana, and Santa Fe) or TRD-designated economically distressed areas. Facilities must be located there for 10% rates. Strike Tax confirms eligibility.

Why is New Mexico’s R&D credit valuable for tech companies?

Tech firms benefit from payroll-linked additions and rural doublings, with strong utilization in the sector. Three-year carryforward for basic credits provides ongoing value. Strike Tax tailors for NM tech.

How does the payroll increase work for New Mexico’s additional credit?

Requires $75K growth over prior-year base per $1M QREs claimed, applied to payroll at the qualified facility. Verified via records; unlocks 5% extra (10% rural). Strike Tax calculates benchmarks accurately.

What are the 2025 changes to R&D tax credits in New Mexico?

No major statutory changes; program stable post-2015. Monitor TRD for form updates or HB 2 expansions on job ties. Strike Tax tracks compliance shifts.

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