Discussion:New Mexico Gross Receipts Tax

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Discussion Forum Index --> Tax Questions --> New Mexico Gross Receipts Tax


JR1 (talk|edits) said:

September 11, 2007
I have a client who relocated to NM, performing cost segregation studies for businesses both in NM and elsewhere. From what we were told initially, the NM Gross Receipts Tax of 5% didn't apply to him. He's now being told by another accounting firm that he is subject to the tax for NM jobs only. What's the case? And mechanically, is this like a sale tax that is added to a customer invoice? Or merely built into the cost of service and paid by the service providor?

Thanks, Jeff

TexCPA (talk|edits) said:

11 September 2007
[What is Gross Receipts Tax]

Is client an individual or business?

JR1 (talk|edits) said:

September 11, 2007
Business...S corp, one man op.

JR1 (talk|edits) said:

September 11, 2007
I have read that, Tex. Maybe what changed is that when he started, there wasn't going to be NM work. He would only work clients out of state, and it didn't apply. Now that he is doing NM deals, it appears it will. Guess I'm just looking for confirmation.

KatieJ (talk|edits) said:

11 September 2007
Yes, if he's performing services in New Mexico, he is subject to the tax.

JR1 (talk|edits) said:

September 11, 2007
Only his NM deals, or on any deals he does where the work is performed in NM?

TexCPA (talk|edits) said:

11 September 2007
see section [7-9-3.5. Definition; gross receipts.]

.."gross receipts" means the total amount of money or the value of other consideration received ..from performing services in New Mexico...

there seems to be several exemptions as well..7-9-13 - 7-9-42, and deductions ..In computing the gross receipts tax or governmental gross receipts tax due, only those receipts specified in Sections 7-9-46 through 7-9-76.2, 7-9-77.1, 7-9-83, 7-9-85 through 7-9-87 and 7-9-89 NMSA 1978 may be deducted. Receipts, whether specified once or several times in those sections, may be deducted only once from gross receipts or governmental gross receipts.

And mechanically, is this like a sale tax that is added to a customer invoice? If the GRT is not stated on the invoices, you would need to back out, Or merely built into the cost of service and paid by the service providor? see answer above.

hope this helps

KatieJ (talk|edits) said:

12 September 2007
JR1, the way I read the NM law, your client is taxable on gross receipts from all services that he performs in New Mexico, regardless of where the benefit of the service is enjoyed by the purchaser; and also on any services he performs outside New Mexico if the benefit of the service is first enjoyed by the purchaser in New Mexico.

So if he performs all of his services in NM, all of his gross receipts are subject to the tax. For any services he performs outside NM, only the gross receipts from services performed for the benefit of NM customers are taxable.

I believe you have the choice of separately stating the tax on the invoice and collecting reimbursement from the customer, or paying the tax on the gross receipts without reimbursement.

JR1 (talk|edits) said:

September 12, 2007
Thank you Tex and Katie. Bill me accordingly.

Jdugancpa (talk|edits) said:

12 September 2007
Ouch, I thought my Washington 1.5% B&O tax was harsh.

Arman barsamian (talk|edits) said:

20 October 2008
No, it may not be treated as sales tax for Federal income taxes for the provider or seller. (I.E., Sales reported net of sales tax on Line 1 -- as it is in sales tax states).

New Mexico law *does* allow GRT to be separately stated and added to a customer invoice, unlike Washington and Delaware.

However, per 7-9-4 NMSA and pertinent regulation released thereunder

NMAC 3.2.4.8 "3.2.4.8

WHO IS THE TAXPAYER: The gross receipts tax is imposed on persons engaging in business in New Mexico. Such persons are solely liable for payment of the tax; they are not “collectors” on behalf of the state.

[7/26/76, 6/18/79, 4/7/82, 5/4/84, 4/2/86, 11/26/90, 11/15/96; 3.2.4.8 NMAC – Rn, 3 NMAC 2.4.8, 4/30/01]

The amount of sales or receipts for Federal income taxes includes collected gross receipts tax. However, the business in entitled to deduct GRT on the tax return as taxes, obviously.

Revenue Ruling 73-465, concurs this position as does Hawaii Department of Taxation which has a similar excise or gross receipts tax imposed on businesses -- not consumers.

Only in the case of a sales tax imposed on the consumer and in which the seller acts as a collection authority on behalf of the taxation department may sales be stated net of sales tax.

Note, that the 5% rate is the state rate: local rates often always apply, too.

Finally, please note that 7-9-4 NMSA specifically label the New Mexico Gross Receipts Tax as an *excise tax* imposed on any person engaging in business in New Mexico.

Lhhesscpa (talk|edits) said:

20 October 2008
New Mexico Gross Receipts Tax is one of the challenges of doing business here. And, for people who come from elsewhere, it's a confusing fact of life. What's particularly unusual is that personal services are taxed. Like tax return prep., and legal services, and some medical services, and some food. Even services provided to government entities and non-profits are taxed even though those organizations don't pay tax on the tangibles they purchase.

So it's not surprising that professionals from elsewhere can get confused. So here are my responses to the question that Jeff posed and my comment on Mr. (why is your profile blank?) Barsamian's comments.

1. Receipts from sales of services to out-of-state buyers are not subject to NM Gross Receipts Tax. They are reported on the reporting form and then deducted on the form so that they aren't taxable. (It may be interesting to note that the gross receipts that are defined in the statutes as exemptions don't have to be reported.)

"Receipts from performing a service may be deducted from gross receipts if the sale of the service is made to an out-of-state buyer who delivers to the seller either an appropriate nontaxable transaction certificate or other evidence acceptable to the secretary unless the buyer of the service or any of the buyer's employees or agents makes initial use of the product of the service in New Mexico or takes delivery of the product of the service in New Mexico." NMSA 7-9-57

There are examples in the regs.

2. Respectfully, I beg to differ with Mr. Barsamian that NM Gross Receipts Tax is not deductible on federal Sch. A as a general sales tax. I'm not going to go into the technical details now, but the deduction is well-established. Moreover, sellers are indeed permitted, but not required, to itemize the Gross Receipts Tax. -- Larry Hess, CPA | Albuquerque, NM

Arman barsamian (talk|edits) said:

21 October 2008
I absolutely agree with you, Mr. Hess, about Schedule A, Form 1040 deductibility of New Mexico GRT, even if it is an "excise tax". Thank you, for clarifying that for what may be a largely out-of-state group.

That authority (deduction from AGI) is found within Section 164(b)(5)(A) thru (B) and further clarified in Reg §1.164-3(f)(1) which allows even certain excise (such as NM GRT) type taxes to be treated as a general sales tax [for Schedule A purposes]:

"This may include a tax imposed on persons engaged in selling property at retail or furnishing services at retail, for example, if the tax is measured by gross sales price or by gross receipts from sales or services. "

However, Schedule C or other business return (1120, 1065, 1120S, etc) treatment (i.e., a deduction for AGI) and subsequent "grossing up" of sales to gross receipts should be in accordance with Section 162, as an excise tax, per literal state law. Separately stating an item on a receipt would not change the character of the tax -- for the business entity -- nor transfer liability on the end-user or consumer, by election of the business; since, the tax is imposed, by operation of law, on the business entity and as such is a valid Section 162 deduction. In order to deduct it as a business tax expense its collection needs to be reflected in gross receipts.

In many cases the GRT gross up vs net of sales approach fails to make any difference. However, there are times when gross receipts are tested for tax election availability.

I will add a profile in the next few days.

Hmoy (talk|edits) said:

29 October 2009
Does it make any difference for someone (a one person S-Corp) rendering medical service in an Indian Reservation in NM? Thanks.

NMexEA (talk|edits) said:

29 October 2009
Oh, man, what a question! In general (and subject to harsh correction from Larry above) I believe that a non-Indian tribal member conducting business anywhwere within the borders of the state, including on an Indian reservation, must pay state gross receipts tax. One possible exception might be if the taxpayer is performing these services pursuant to a contract with the tribal government.

So how about it, Larry? Do I get the bell or the buzzer?

Lhhesscpa (talk|edits) said:

15 November 2009
I believe that a non-Indian tribal member conducting business anywhwere within the borders of the state, including on an Indian reservation, must pay state gross receipts tax.

Norm, you get ... well, I'm not sure. Because I don't what you mean by non-Indian tribal member. (To be fair, there aren't as many reservations in Las Cruces as Albuquerque.) The rule is that receipts of an Indian from business conducted on the reservation of which he/she is an enrolled member are exempt from NM Gross Receipts Tax. NMSA 7-9-4 & Regs. NMAC 3.2.4.9.D.

One possible exception might be if the taxpayer is performing these services pursuant to a contract with the tribal government.

That is correct. Same cite as above.

-- Larry Hess, CPA ~ Albuquerque, NM

KatieJ (talk|edits) said:

15 November 2009
So, if the provider of the service on the Indian reservation is a reservation Indian, the receipts are not subject to the tax; but if the provider is not an Indian, the receipts are taxable unless the services are performed under a contract with the tribe

Have I got that straight, Larry?

Lhhesscpa (talk|edits) said:

15 November 2009
Katie, you are correct, except that a contract is not required. "(1) Receipts from performing services, other than construction or telecommunications services, sold to an Indian tribe or member thereof [ed] on that tribe's territory are not subject to gross receipts tax if taxation of such receipts is prohibited by federal law." NMAC 3.2.4.9.D.1

KatieJ (talk|edits) said:

15 November 2009
Ah. So you would have to look to the federal law to see whether the tax is prohibited.

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