A. Except as provided otherwise in Subsection B of this section, the value of tangible personal property may be deducted in computing the compensating tax due if the person using the tangible personal property:

(1) is engaged in a business which derives a substantial portion of its receipts from leasing or selling tangible personal property of the type leased;

(2) does not use the tangible personal property in any manner other than holding it for lease or sale or leasing or selling it either by itself or in combination with other tangible personal property in the ordinary course of business; and

(3) does not use the tangible personal property in a manner incidental to the performance of a service.

B. The deduction provided by this section shall not apply to the value of:

(1) furniture or appliances furnished as part of a leased or rented dwelling house or apartment by the landlord or lessor;

(2) coin-operated machines; or

(3) manufactured homes.

History: 1953 Comp., § 72-16A-15.1, enacted by Laws 1969, ch. 144, § 65; 1973, ch. 245, § 1; 1975, ch. 160, § 4; 1979, ch. 338, § 8; 1981, ch. 184, § 3; 1984, ch. 2, § 7; 1991, ch. 203, § 9.

The 1991 amendment, effective July 1, 1991, inserted the subsection designation A at the beginning of the section and redesignated former Subsections A to C as Paragraphs (1) to (3) of Subsection A; rewrote the introductory paragraph of Subsection A which read "The value of tangible personal property other than furniture or appliances furnished as part of a leased or rented dwelling house or apartment by the landlord or lessor, other than coin-operated machines and other than mobile homes may be deducted in computing the compensating tax due if the person using the tangible personal property" and added Subsection B.

Determining character of transaction. — The characterization of a transaction as a lease may be determined by looking to the intentions of the parties as evidenced by their actions with respect to the leased property. Music Serv. Co. v. Bureau of Revenue, 1975-NMCA-114, 88 N.M. 432, 540 P.2d 1321.

Lease and bailment distinguished. — Since taxpayer, which was in the business of providing coin-operated, amusement and vending equipment for use by business establishments for the pleasure or amusement of their patrons, utilized two types of agreements, one of which was a lease under which payment was made to taxpayer by a flat fee, whereas in the other type of agreement payment was made by a division of the proceeds from the machines under an oral agreement based on a document called "Agreement for Joint Operation of Amusement Devices," it was held that the taxpayer knew the difference between a lease agreement and a bailment for the mutual benefit of itself and a business establishment, supporting the inference that the relationship between taxpayer and establishment was not a lease. Music Serv. Co. v. Bureau of Revenue, 1975-NMCA-114, 88 N.M. 432, 540 P.2d 1321.

Laundry transactions are leasings. — Since the taxpayer's coin-operated laundry business is used for a consideration by persons other than the owner, the transactions are "leasings" as defined in Section 7-9-3J NMSA 1978, and the taxpayer is entitled to a deduction from compensating tax liability for the value of the washers and dryers. Strebeck Props., Inc. v. New Mexico Bureau of Revenue, 1979-NMCA-035, 93 N.M. 262, 599 P.2d 1059.

Construction of temporary provision. — Temporary provision enacted by Laws 1977, ch. 144, § 66, providing for exemption from higher tax rate for certain contracts "entered into prior to the passage of this act," necessarily referred to contracts entered into prior to July 1, 1969, the date on which, pursuant to N.M. Const., art. IV, § 23, the bill became law, and an attempt by the commissioner (now the secretary of the taxation and revenue department) to set by regulation an earlier cutoff date (the date on which the bill was signed by the governor) was invalid. R.H. Fulton, Inc. v. N.M. Bureau of Revenue, 1973-NMCA-133, 85 N.M. 583, 514 P.2d 1079.

Exemption not waived. — Failure to register pursuant to the terms of a regulation promulgated under a temporary exemption provision which was invalid because it set a cutoff date contrary to that provided by the legislature was not a waiver by the taxpayer of his rights under the statute. R.H. Fulton, Inc. v. N.M. Bureau of Revenue, 1973-NMCA-133, 85 N.M. 583, 514 P.2d 1079.

Constitutionality of former temporary exemption. — Former 72-16-5D, 1953 Comp., which exempted lump-sum or unit-price contracts entered into prior to the effective date of the act, which by their terms would not permit a price increase in the event of imposition of additional tax, from the operation of the gross receipts tax, did not amount to an arbitrary or unreasonable distinction violative of principles of equal protection and uniform taxation. Gruschus v. Bureau of Revenue, 1965-NMSC-013, 74 N.M. 775, 399 P.2d 105 (decided under prior law).