Understanding New Mexico Sales and Use Taxes
Understanding and complying with the sales tax requirements in the states in which you do business is absolutely essential. More states are taxing services, as well as retail sales, so no business owner can afford to be in the dark. In addition, you may find that you are liable for use taxes for products purchased out of state. This article answers some of the basic questions regarding sales tax in New Mexico.
When you engage in business in New Mexico you must pay sales tax based on your gross receipts. Gross receipts include the total amount of money or other consideration received from the following items:
- from selling property in New Mexico
- from leasing property employed in New Mexico
- from selling services performed outside New Mexico the product of which is initially used in New Mexico
- from performing services in New Mexico
- any receipts from sales of tangible personal property handled on consignment
Leases. Generally, receipts from renting or leasing tangible personal property used in New Mexico are taxable. Leasing may be defined as an agreement under which property is employed for or by any person other than the owner of the property for a consideration.
Sales and use tax rate. The New Mexico sales and use tax rate is 5.125 percent. In addition, make sure you contact your local governments in New Mexico because they are allowed to assess a local sales and use tax. You can get a copy of the latest rates, which are adjusted twice a year (in January and July) on the New Mexico Taxation and Revenue Department website.
Vendors Are Solely Liable for Sales Tax
In New Mexico the gross receipts tax is imposed on persons engaging in business in the state. Persons engaging in business include the sellers or lessors of property and the sellers of services. These persons are solely liable for the tax and are not acting merely as tax collectors for the state.
Absorbing the tax is not permitted. In New Mexico it is against the law to refund or offer to refund all or any part of the amount collected, or to absorb the amount of sales tax required to be added to the sales price and collected from the purchaser. As a seller, it is also against the law for you to advertise directly or indirectly that you will absorb the sales tax that is required to be added to the sales price.
Businesses Must Obtain Tax Permits
In New Mexico you must register with the Taxation and Revenue Department. Complete Form RP-31, Application for Registration, to register for your sales tax permits.
Many Transactions Are Exempt from Tax
New Mexico has many specific items that are exempt from sales tax — for example, an automobile warranty contract is exempt from New Mexico sales tax. You'll want to check and see if you are exempt from the sales tax.
An exemption certificate provided by a purchaser of a nontaxable item. The exemption certificate may be based on the type of transaction (such as a resale exemption) or on the item itself.
Purchases for Resale Are Not Taxed
When tangible personal property is sold for resale, the seller may deduct the receipts from gross receipts. However, the purchaser must present a nontaxable transaction certificate to the seller and must resell the property in the course of business. If the purchaser does not resell the property you must pay the compensating (use) tax.
Requirements for resale exemption certificates. The New Mexico Taxation and Revenue Department issues nontaxable transaction certificates. Those who wish to use a resale certificate must register and apply for authority to issue certificates to your suppliers. Upon approval of your application, the Department will provide the type of certificate forms, serially numbered, requested.
The Department issued a series of nontaxable transaction certificates for the period beginning January 1, 1992, and ending December 31, 2004. The Department then issued a separate series of nontaxable transaction certificates for the 12-year period beginning January 1, 2005, and will do it again for each 12-year period beginning on January 1 of every 12th year after calendar year 2005. Certificates issued for any 12-year period are valid only for transactions occurring within that period.
The certificates must be on numbered forms issued specifically to a purchaser, and they may not be used by anyone else. When executing a nontaxable transaction certificate, the purchaser must complete and sign the certificate form. The purchaser must then provide the original certificate to the seller or lessor, send one copy to the Taxation and Revenue Department, and retain one copy as a record.
Resale Certificates Function as Blanket Certificates
Sellers need to possess only one resale certificate from each buyer in order to claim the resale exemption allowed by the certificate.
Physical Presence Triggers Tax Liability
You will be responsible for paying sales tax only if you have physical presence within New Mexico. To determine if you have physical presence, ask yourself the following:
- Do I have retail facilities, a warehouse, or any office space in New Mexico? Maintaining retail or warehouse facilities will give you physical presence. Also, having an office for employees, even for business activities unrelated to mail order sales, will give you physical presence.
- Do my employees or I enter New Mexico for purposes of taking and transmitting orders from New Mexico? If your employee or independent contractor goes into New Mexico to take or transmit orders, your business may have physical presence in New Mexico. However, contracting with a common carrier to deliver mail order goods does not constitute physical presence.
- Do my delivery vehicles frequently enter New Mexico for purposes of delivering property? Frequent deliveries in New Mexico by your trucks will give you physical presence in New Mexico.
Claiming Refund for Excess Tax Payments
You may deduct from gross receipts any refunds and allowances made to your customers. If you paid sales tax for which you were not liable, you may file a claim for refund within basically three years from the payment due date.
New Mexico Imposes Use Tax on Out-of-State Purchases
The compensating (use) tax is imposed on persons using services in New Mexico that was not initially subject to the gross receipts tax but which, because of the buyer's subsequent use, should have been subject to the use tax. The use tax is also imposed on the privilege of using tangible property in New Mexico acquired or converted to use by the manufacturer in the following instances:
- property is manufactured by the person using the property in New Mexico
- property is acquired outside the state in a transaction that would have been subject to the gross receipts tax had it occurred in the state
- property is acquired as the result of a transaction not giving rise to the payment of tax but which, due to the eventual use of the property, would have required payment of the tax
Property brought into New Mexico on which a sales or use tax has been paid in another state equal to or in excess of the New Mexico tax is not subject to tax in New Mexico. The user of the property is liable for the tax, but is discharged if the tax was paid to the seller.