Starting July 1, 2019, both in-state and out-of-state companies doing business in New Mexico became subject to new state tax laws initiated by House Bill 6, signed into law on April 4. The largest and most notable change to the existing laws was the adoption of an economic nexus standard along the lines of the 2018 South Dakota v. Wayfair Supreme Court decision.
The state of New Mexico imposes a gross receipts tax on sellersâ€™ gross receipts in New Mexico, rather than a sales tax on the buyerâ€™s purchase of goods and services. Sellers alone are liable for payment of the tax, and the state does not consider them a â€œcollectorâ€ on behalf of the state. This means that New Mexico buyers in the past may not have been aware of the percentage of their purchase that was designated as tax.
For example, a local NM brewery charges a customer an even $6.00 for a drink, which assumes gross receipts tax is included the price. Using the Albuquerque tax rate of 7.875% as an example, the actual price of the drink would be $5.56 and the tax $0.44, making the total $6.00. If the brewery does not include tax in the price, a separate tax amount of $0.47 would be added on the receipt, making the total $6.47.
New Mexico now requires businesses to either separately state the amount of gross receipts tax that is associated with the transaction, or provide a statement that indicates that the gross receipts tax is included in the amount billed on sales receipts.
Since the tax is imposed on the seller, it is not uncommon for a business to charge a flat amount to a customer and then back-out the gross receipts tax for reporting purposes. This practice will now only be acceptable if the sales receipt includes a statement indicating that gross receipts tax is included in the billed amount.
Businesses need to be aware of how this change can impact their transactions. If the tax is not separately stated or a disclosure is not included on the receipt, New Mexico may subject the entire invoice amount to gross receipts tax.
This change took effect on July 1, 2019 and was a part of House Bill 6 that initiated several complex changes to New Mexico tax laws over a seven-year time period. You can read more about these changes in our original blog post on House Bill 6, which was signed into law on April 4, 2019.
Please contactÂ James Ortiz, REDWâ€™s State and Local Tax Senior Manager, to discuss any of the information in this article.