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New Mexico Sales Tax, Use Tax & Sourcing, Explained
byJanuary 20, 2021
This article explains some of the unique qualities of New Mexico sales taxes and some guidance as to which jurisdictions local taxes are due to.
What’s different about New Mexico sales tax & use tax?
New Mexico sales tax is so different from other sales taxes that it doesn’t even exist. No… really.
New Mexico is one of a handful of states (like Arizona, Hawaii, and Illinois) that do not have typical, transaction-based sales & use taxes. Instead, they have a Gross Receipts Tax (GRT) which is levied on the seller (instead of the purchaser) for the privilege of doing business within the state. “Gross Receipts” are the total amount of money or other consideration received for taxable activities.
With a traditional sales tax, the seller is merely merely acting as a collection agent for the taxing authorities. But with Gross Receipts Tax the seller is the responsible party when it comes to paying the tax. The seller has the option to pass the tax along to the buyer if they separately state it on their sales invoices, but they are not required to do so and may absorb the tax themselves if they choose. All sellers who have established nexus in New Mexico should be paying Gross Receipts Taxes on their taxable sales to New Mexico customers.
New Mexico also has a “Compensating Tax,” which – aside from its name – is virtually identical to use taxes in other states. The Compensating Tax is levied on whomever exercises ownership rights over taxable property in the state (usually the purchaser) and is based on the market value of the goods purchased. Credit against this tax is given for any Gross Receipts Taxes previously paid by the user on the same property. Sellers who do not have the obligation (i.e. they do not have nexus in NM) to pay Gross Receipts Tax may register and collect Compensating Tax from New Mexico customers if they choose.
To which jurisdiction are the local Gross Receipts Taxes due?
Sellers Located in New Mexico
For sellers with businesses located in New Mexico, local Gross Receipts Taxes are due to the “business location” of the seller. Sellers with multiple locations located in multiple taxing jurisdictions must register all locations in each locality separately. Although the definition of “business location” can vary based on what type of business operations you have, for retailers it is considered to be your principal place of business. A fulfillment warehouse is not considered to be a “business location” of the seller if it is not the same place where the principal business operations are carried out.
More information about correct sourcing of local Gross Receipts Taxes can be found here in New Mexico’s administrative code – Section 126.96.36.199: We have been told by the New Mexico Taxation and Revenue Department that the FBA business model is synonymous with example 10 on that page.
Sellers Located Outside New Mexico
New Mexico makes Gross Receipts Tax compliance easy for out-of-state sellers. If your “business location” is located outside New Mexico, you are only required to collected the state Gross Receipts Tax of 5.125% and should report all sales to New Mexico customers under the out-of-state business location code of 88-888.
More general info about New Mexico’s Gross Receipts Tax and Compensating Tax can be found on the New Mexico Taxation and Revenue Department’s website and in the Department’s publication FYI-105: Gross Receipts and Compensating Taxes: An Overview.