Section 24. Custom Software

A. Because it is a service, receipts from developing or selling custom software for governmental entities are not deductible under Section 7-9-54 NMSA 1978. B. Example 1: X contracts with the United States to develop software to test certain devices which the United States is considering purchasing. X is performing a service under this contract. C. Example 2: Same facts as in Example 1 except that X is to modify an existing software test program. X is nonetheless performing a service under the contract. D. Example 3: X enters into a qualifying research and development contract with a signatory agency of the United States. The contract is to develop software to test certain devices which the United States is considering purchasing. X is performing a service under this contract. To create the testing program X buys several pieces of packaged software and develops new programming to interconnect the packaged software into a coherent testing program. X may execute, and the vendors may accept in good faith, Type 15 non-taxable transaction certificates or alternative evidence as provided by Section 7-9-43 NMSA 1978 for the purchase of the packaged software. [4/30/1997; 3.2.212.24 NMAC - Rn & A, 3 NMAC 2.54.24, 5/31/2001; A, 12/27/2018] 3.2.212.25 FEDERAL CREDIT UNIONS ARE GOVERNMENTAL INSTRUMENTALITIES BUT STATE CREDIT UNIONS ARE NOT. A. Federal courts have ruled that credit unions chartered under the Federal Credit Union Act are instrumentalities of the federal government. See United States v. Maine, 524 F. Supp. 1056 (D. Me. 1981) and United States v. Michigan, 851 F.2d 803 (6th Cir. 1988). Therefore persons who sell tangible personal property to federal credit unions are entitled to the deduction provided by Section 7-9-54 NMSA 1978. B courts have ruled that credit unions chartered under the Federal Credit Union Act are instrumentalities of the federal government. See United States v. Maine, 524 F. Supp. 1056 (D. Me. 1981) and United States v. Michigan, 851 F.2d 803 (6th Cir. 1988). Therefore persons who sell tangible personal property to federal credit unions are entitled to the deduction provided by Section 7-9-54 NMSA 1978. B. Although Section 58-11-61 NMSA 1978 exempts from gross receipts tax the receipts of a credit union organized under or subject to the Credit Union Regulatory Act to the same extent that the receipts of a credit union chartered under federal law are exempt, the receipts of a vendor who sells tangible personal property to credit unions organized under or subject to the Credit Union Regulatory Act are not deductible under Section 7-9-54 NMSA 1978. The gross receipts tax is imposed on the receipts of the vendor; it is not imposed on the credit union. Credit unions organized under or subject to the Credit Union Regulatory Act are not instrumentalities of the federal government and no statute or judicial determination makes them instrumentalities of New Mexico. A vendor’s receipts from selling tangible personal property to state-chartered credit unions, however, may be deductible under Section 7-9-61.2 NMSA 1978. This version of Subsection B of Section 3.2.212.25 NMAC applies to transactions occurring on or after July 1, 2000. C. Section 3.2.212.25 NMAC is applicable to transactions on or after July 1, 1997.