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New Mexico finds interest on payment-in-kind notes is non-business income

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The Chief Hearing Officer of the New Mexico Administrative Hearings Office recently granted a taxpayer’s motion for summary judgment and held that interest income on payment-in-kind notes, received by a taxpayer when it disposed of its grain merchandising line of business, constituted non-business interest income that must be allocated to the taxpayer’s state of domicile of Nebraska. This determination rested on the definition of business income contained in the Uniform Division of Income for Tax Purposes Act, as adopted by New Mexico, and the constitutional standards imposed by the Commerce and Due Process Clauses of the U.S. Constitution.