By Chelsea Marmor and Charlie Kearns

The New Mexico Administrative Hearings Office affirmed the Taxation and Revenue Department’s assessment to Agman Louisiana Inc. based on the taxpayer’s gain from the sale of stock of a corporation in which the taxpayer owned less than a 50% interest. The Hearings Office ruled that such gain was apportionable business income subject to New Mexico corporate income tax. Agman argued that the gain was non-business income and must be allocated to its commercial domicile. The Hearings Office disagreed and determined that Agman met New Mexico’s three-prong business income test in NMSA 1978 § 7-4-2(A). Under the first prong of that statutory test, the Hearings Office summarily concluded that Agman met the threshold “transactional test” because the sale arose from “transactions and activity” in the “regular course of the taxpayer’s trade or business.” Agman met the second prong “disposition test” because the income from the stock sale arose from the disposition of a business. The company also met the third prong “functional test” because the income from the sale of the stock provided the taxpayer with an “operational benefit integral to [its] business.” Finally, the Hearings Office ruled that characterizing the gain as apportionable business income did not offend the US Constitution because the stock that generated the gain served an “operational rather than investment function,” as explained in the Supreme Court’s Allied Signal and MeadWestvaco decisions. In the Matter of the Protest of Agman Louisiana Inc. v. Taxation & Revenue Dep’t, N.M. Admin. Hearings Office, Decision and Order No. 17-47 (Dec. 5, 2017).