Clarence F. Garrett



The Taxpayer moved to New Mexico in July 2004.  On his 2004 New Mexico personal income tax return, the Taxpayer claimed a credit for taxes paid to Pennsylvania on capital gain from real estate sold prior to July 2004; none of this income was allocated to New Mexico on the Taxpayer’s New Mexico income tax return.  The Department disallowed the credit and assessed the Taxpayer for additional personal income tax, plus penalty and interest.  The Taxpayer protested, arguing that New Mexico’s method of calculating the tax liability of first-year residents is unfair and results in the illegal taxation of out-of-state income.  Held:  New Mexico’s method of calculating tax on the in-state income of first year residents is not unique and has been upheld by both federal and state courts.  Because the capital gain income from the sale of Pennsylvania real estate was not included in the New Mexico percentage used to calculate the Taxpayer’s New Mexico tax liability, he is not entitled to claim a credit for taxes paid to Pennsylvania on that income.  Protest denied.