Taxes on Business Income in New Mexico
New Mexico imposes a corporate income tax. The tax rate ranges from 4.8 percent to 7.6 percent and is based upon corporate taxable net income attributable to New Mexico. If you operate your business as a sole proprietorship or via a pass-through entity, then you must report your business income on your personal tax return.
In New Mexico, you're generally free to choose to operate your business as a C corporation, S corporation, partnership, limited liability company (LLC), or sole proprietorship. However, the entity type you select for your business may, in some cases, decide whether you or your business pays income taxes on the business income.
C Corporations Are Subject to Corporate Income Tax
Domestic corporations (corporations organized in New Mexico) and foreign corporations (corporations organized in a state other than New Mexico) are subject to a New Mexico income tax. The regular corporate income tax is computed as follows:
|Taxable Net Income ||Tax |
|Not over $500,000 ||4.8% |
|Over $500,000, but not over $1,000,000 ||$24,000 plus 6.4% of excess over $500,000 |
|Over $1,000,000 ||$56,000 plus 7.6% of excess over $1,000,000 |
If your corporation's only activity in New Mexico is making sales and you do not own or rent real estate in the state you may be eligible to pay an alternative tax. Your sales in New Mexico must not exceed $100,000 to be eligible for the alternative tax. Your alternative tax (instead of the regular corporation tax) is 0.75 percent of gross receipts from sales in or into the state.
S Corporation Income Passes Through to Shareholders
If you meet the federal tax law requirements to operate as an S corporation, the IRS allows your business to "pass through" its income to the shareholders. This means that your business will not pay any federal corporate level income tax. However, you'll have to claim your entire share of the business income on your personal federal income tax return even if you did not take any money out of the business. New Mexico extends this favorable tax treatment to state corporate income tax liability. Therefore, S corporations will not be subject to the corporate income tax.
Partnership Income Passes Through to Partners
If you operate your business as a partnership, your partnership will not be taxed on its net income. Instead, partners must include in their New Mexico taxable adjusted gross income their distributive share of partnership income.
Federal Tax Status Governs Taxation of LLCs
New Mexico law recognizes businesses operating as limited liability companies (LLCs). Domestic and foreign LLCs in New Mexico are classified as either partnerships or corporations for New Mexico tax purposes. LLCs follow the federal rules on how they will be taxed. Accordingly, if your LLC is treated as a partnership on the federal level, then it will not be taxed on its net income. Instead, members must include in their New Mexico taxable adjusted gross income their distributive share of LLC income.
If a business is classified as an association taxable as a corporation for federal income tax purposes, it will also be taxable as a corporation for New Mexico tax purposes.