Decoupling Protected New Mexico from Millions in Lost Revenue

By Emily Wildau, MPP
Director of Policy
March 26, 2026

In New Mexico, we prioritize the health and well-being of our families and children, but we can’t support them without enough state revenue for the programs and services they need to thrive. This session, state legislators and Governor Michelle Lujan Grisham passed legislation to protect revenue that would have been lost if the state did not take action. 

State lawmakers have worked hard to improve fairness in New Mexico’s tax code over the last several years, but our state practices rolling conformity — meaning many, but not all, federal tax changes are automatically adopted in our state tax code. Usually conformity is for administrative ease, as tax changes don’t often happen on a large scale. Last summer, however, the federal government passed significant changes to the federal tax code through the One Big Beautiful Bill Act (OBBBA).

These changes impacted both Personal (PIT) and Corporate Income Taxes (CIT), and because of rolling conformity, New Mexico lawmakers estimated a loss of $140M – $145M in CIT revenue. Fortunately, states have the freedom to decouple from, or reject, certain federal tax provisions at any time. 

As this year’s Legislative Session approached, state lawmakers discussed decoupling from a small number of federal CIT changes, and conforming to another to help prevent tax avoidance by large, multinational corporations. Ultimately, lawmakers introduced SB 151, which included decoupling provisions and conformity with Net CFC Tested Income (NCTI), and later became this year’s tax package. The bill passed both chambers, and Governor Lujan Grisham signed it into law on March 11. To make this package revenue neutral, the expenditures in SB 151 have staggered start dates, and all the tax credits and deductions have sunset dates.

So what exactly are the decoupling and conformity provisions in SB 151?

• First-year bonus depreciation – A provision that allows a business to write off the full cost of purchase for most machinery and equipment in the year they are put into service, rather than over time. This results in lost state revenue with no guarantee that qualifying capital investments will actually be made within the state. The majority of states have permanently decoupled from this federal provision.
• First-year expensing for manufacturing facilities – A new, temporary provision that allows an additional 100% bonus depreciation for certain manufacturing buildings. Because there is no legal way to limit this deduction to facilities located in New Mexico, the state would risk subsidizing investments made elsewhere.
• Business interest deductions – A provision which loosens the cap on how much interest on loans can be deducted by corporations. This allows large companies to excessively leverage debt to reduce taxes, and especially incentivizes private equity firms to acquire firms with debt to maximize their profits.
• Conformity with NCTI – A provision to prevent multinational US companies from avoiding state tax obligations by assigning profits to foreign subsidiaries offshore.

Source: NM Legislative Finance Committee Fiscal Impact Report for Final Version SB 151
*All tax expenditures through credits or deductions include an end date, but revenue provisions and the appropriation for state employee salary increases do not expire.

As with any tax package, there are a number of tradeoffs. Although some of the GRT deductions and tax credits through the CIT code are intended to strengthen the health and vibrancy of our communities, doubling the Working Families Tax Credit instead would have offered more direct financial support to New Mexico families. Regardless, this year’s tax package is a win for our families, children, and our state economy. By decoupling and conforming to certain federal tax provisions, SB 151 ensures our state tax code supports our communities and protects revenue in our budget, instead of giving a tax break to large corporations.