Gross Receipts Tax Online: Do You Pay Gross Receipts Tax on Online Sales?
Is your company located in the State of New Mexico? Is your company selling product online? Are you wondering when you’re supposed to collect gross receipts tax (GRT) for the sales? This is a common question so I thought it important to talk about it on our blog. In my experience, most businesses usually have a poor understanding of Gross Receipts Tax for out-of-state sales.
What is Gross Receipts Tax?
The New Mexico Gross Receipts and Compensating Tax Act is found in Chapter 7, Article 9, Sections 1 through 115 of New Mexico Statutes, and the overview of what types of transactions are subject to gross receipts tax can be found in Section 7-9-3.5, which begins with the following general statement in subsection (A)(1):
- “gross receipts” means the total amount of money or the value of other consideration received from selling property in New Mexico, from leasing or licensing property employed in New Mexico, from granting a right to use a franchise employed in New Mexico, from selling services performed outside New Mexico, the product of which is initially used in New Mexico, or from performing services in New Mexico. In an exchange in which the money or other consideration received does not represent the value of the property or service exchanged, “gross receipts” means the reasonable value of the property or service exchanged.
Possible Issues with the NM Gross Receipts Tax
From this general statement, the sales of services to an out-of-state buyer are subject to gross receipts tax if the product of those services is initially used in New Mexico. While this is a simple statement, a large legal community specializes in clarifying whether the product of services sold to an out-of-state buyer was “initially used in New Mexico”. The issue is most common in the case of a person or company in New Mexico that provides services or reports for an out-of-state company. An example would be a person residing in New Mexico who contracts with a company in Texas to produce reports. Say the consultant produces a report on the feasibility of doing business in New Mexico, and delivers it to the Texas company. Does the consultant have to report and pay gross receipts taxes on the income from that report?
To pay or not to pay- the answer is rarely clear
In order to answer that question, the relevant inquiry is whether the product of the report was “initially used in New Mexico”. The answer to that question may depend on the particular facts of the case. If, for example, if said report causes a previously stalled project in New Mexico to be restarted, then it’s quite clear the product was initially used in New Mexico. Thus gross receipts tax would be due from the consultant on payment received from the report. On the other hand, the report (product) caused the stoppage of a project in New Mexico, the answer would be less clear. In other words, it depends largely on circumstances.
Responses to the NM Gross Receipts Tax
The question most small businesses have is if they should question the tax or pay it. No small business wants to be audited. Unfortunately, no one answer fits all situations. However there are two options should be considered: to pay or not to pay. If you report the income and pay gross receipts tax on it but later discover the income was not subject to the tax, you may request a refund of the tax you paid, but without interest.If you choose not to report income as subject to gross receipts tax and are assessed the tax at a future date as a result of an audit by the New Mexico Taxation and Revenue Department, you will be subject to penalties and interest in addition to the base tax determined to be due.
This raises the issue of how to protect yourself from penalties if you are later determined to have made the wrong choice. We will address this issue in a future article.
Law 4 Small Business, P.C. (L4SB). A little law now can save a lot later.
57 Comments
If there are administrative services that are performed for an out of state buyer, for which the use of the services have no relation to New Mexico aside from the administrative services seller, would this qualify? Does the “Delivery and initial use” outside of New Mexico qualify for a NTTC in this case? Thank you so much!
Great article! I just received a Notice of managed Audit Offer – Gross Reciepts Tax from the NM Taxation & Revenue Audit and Compliance Division for tax years 2010 – 2014.
This is my case during those years:
I had an online business that sold products that were made in other states (dropped shipped to my customers so I never saw the product physically) and were only sold to out of state buyers; every once in a long while I would get a NM buyer and would charge them NM taxes (which I reported) but I didn’t charge NM taxes to out of state buyers (the majority of my business). Does this audit represent the fact that I was suppose to be charging taxes to the out of state buyers?
It is confusing…
My company, incorporated and officed in New Mexico, is travelling to Texas to do construction services on property in Texas. We will be buying materials and services from NM vendors with whom we have NTTC’s. Should we charge the Texas client Gross Receipts Tax, which would include GR tax on those suppliers and subcontractors, as well as tax on our labor and markups?
Hi, Sheila.
Thank you for your question. I would strongly recommend you consult with a qualified accountant or CPA on this tax question. It’s my understanding that out-of-state customers are exempt from paying gross receipts taxes, especially when the services are being performed outside the state. Note that just because you’re licensed for construction in NM, doesn’t mean you’re licensed for construction in TX. You DEFINITELY want to double-check the issues, and make sure you don’t violate any TX regulations or requirements.
Good luck to you! Larry.
I am considering sitting up a business in NM . I have products (tool boxes) built in old mexico. Most of these items are sold online to out of state customers. Do I have to charge gross receipt tax to out of state customers? I talked with an auditor of the state of NM and am still confused by his explanation.
In general, no you do not change NMGRT to out-of-state buyers.
I sell items on ebay and I live in New Mexico. Do I have to pay gross receipts tax?
Thanks
It depends. You should contact a tax professional.
I have an LLC setup in NM with a registered agent. Most of my IT services are performed in other states. No hard goods sold. I am not a NM resident. Do I need to pay gross receipts tax on the services rendered?
Hi, Eric.
Sorry for the delay in responding to you. We actually wrote a blog article on exactly this issue, called Gross Receipts Taxes in the Digital Age. The short answer is “no,” but you really should read the article.
Good luck to you! Larry.
For services or products sold to an out of state buyer, do i need to request an NTTC from the out of state buyer? Or is alternate evidence that the buyer is out of state sufficient for taking the gross receipts tax deduction?
Hello Jonathan,
Thank you for that question. The answer to it depends pretty to a large extent on what it is you’re selling, how you’re selling it, and how it will be used by the buyer. For example, if (1) you’re selling services to an out-of-state buyer, (2) the product of those services is initially used outside the State of New Mexico, and (3) the buyer takes delivery of the product of those services outside the State of New Mexico, income received in exchange for those services is typically deductible from your gross receipts per Section 7-9-57 of the New Mexico Statutes — meaning you would need to report the income from out-of-state sales in your CRS returns but may then deduct it without the need to pay gross receipts tax on it. To prove the validity of your deduction, however, you would need either an NTTC-OSB executed by you and filled in by the buyer, or you would need some “other evidence acceptable to the secretary [of taxation]”. What sort of “other evidence” is acceptable to the secretary is the subject of much debate in the tax world these days, but an NTTC is usually still the best way to protect yourself from a disallowance and a hefty tax assessment down the road.
That said, if you’re selling tangible goods or services “through a world wide web site” to a buyer with an out-of-state address, the income you receive for those sales would be deductible per Section 7-9-57.1 without the need for an NTTC. This makes life a fair bit simpler for e-commerce vendors and incentivizes sellers to have their customers buy products and services through a website — even if they’d normally process customer orders a different way.
I hope this answer helps you. While I’m hopeful that our overly complicated gross receipts tax code will be overhauled sometime in the next few years, all we can do for the moment is work with the system we’ve got.
All the best,
Ian M. Alden
Law 4 Small Business
Hi,
I recently open a small trucking business in New Mexico. I am a owner operator.I only have one semi truck with the trailer. I get loads from a load board and work with diffrent companies that are located out of the state. I transport dry van equiptment goods in and out of the state. I never see the product I transport because I am just a trucker. I only charge for the load that I am transporting. Do I have to get the NTTC certificates from the companies I transport the goods for? I am sorry I am just really confuse and cannot find any one to help me with this question. Please help me.
Hello Yesenia,
Thank you for that question. I’m afraid I can’t give you a concrete answer without understanding more about your situation (e.g., who you’re buying from and selling to, where they’re located, and how the products are used), but I can give you a few general bits of information about New Mexico’s Gross Receipts Tax system that you may find helpful. Generally, if you’re providing services within the State of New Mexico, you’re required to pay Gross Receipts Tax on your income from those services. You’d typically do this by adding the GRT amount (anywhere from 5-9%, depending on the county) as a separate line item on your bill to your customers/clients.
In some situations, that service income can be either exempt or deductible — meaning you wouldn’t need to charge/pay gross receipts tax. This is common when you’re engaging in interstate commerce or selling goods or services for resale. What you described might fall into either of those deductible categories. Unfortunately, I can’t opine with any certainty without knowing more about your situation. You should consider contacting us or another qualified tax attorney or tax professional to get a firm opinion based on your unique business activities. Please feel free to give us a call if you’d like to discuss and get some more clarity on your tax situation.
All the best,
Ian M. Alden
Law 4 Small Business
Hello Yesenia,
Thank you for that question. I’m afraid I can’t give you a concrete answer without understanding more about your situation (e.g., who you’re buying from and selling to, where they’re located, and how the products are used), but I can give you a few general bits of information about New Mexico’s Gross Receipts Tax system that you may find helpful. Generally, if you’re providing services within the State of New Mexico, you’re required to pay Gross Receipts Tax on your income from those services. You’d typically do this by adding the GRT amount (anywhere from 5-9%, depending on the county) as a separate line item on your bill to your customers/clients.
In some situations, that service income can be either exempt or deductible — meaning you wouldn’t need to charge/pay gross receipts tax. This is common when you’re engaging in interstate commerce or selling goods or services for resale. What you described might fall into either of those deductible categories. Unfortunately, I can’t opine with any certainty without knowing more about your situation. You should consider contacting us or another qualified tax attorney or tax professional to get a firm opinion based on your unique business activities. Please feel free to give us a call if you’d like to discuss and get some more clarity on your tax situation.
All the best,
Ian M. Alden
Law 4 Small Business
I had an online business from 2013-2015 where I sold color fan decks. The NM Taxation and Revenue department just sent me a letter, Feb 18, 2019 saying I owe Gross Receipts tax plus penalty and interest.
ALL of my sales were out of state and about 20% were out of the country.
Do I owe the state this tax? I know the laws have changed more recently for online sales but back in 2013 I didn’t think I had to pay gross receipts for out of state/out of county sales.
Hello Shelley,
Thank you for that question. The laws have, indeed, changed, but your transactions from the tax years 2013-2015 are likely governed by the laws in place during those years. As to whether you owe the tax, it’s possible you do — but it’s more likely that there has been some sort of reporting issue that caught NMTRD’s interest. Receipts from the sale of products through a website to buyers with out-of-state addresses have been deductible from gross receipts since the late ’90s. In order to claim the deduction, you must first report those receipts in your periodic CRS returns and then claim the deduction in those same returns. Assuming that was all done properly, you shouldn’t owe any gross receipts tax on those sales.
Your best bet, if you haven’t already, is to consult with a qualified tax attorney or CPA to determine if your reporting obligations were met and figure out your next steps. The worst thing to do in this case is ignore NMTRD’s letters, as they’re prone to issuing liens and aggressively pursuing any tax debt they believe is owed.
Thank you again, and good luck!
All the best,
Ian Alden
Hello,
I am having a similar issue to many independent workers here. Could you please clarify a couple of things stated in the article and comments? One is the from “selling services (or product mentioned above) performed outside New Mexico, the “product of which is initially used in New Mexico” which is incredibly confusing as in the article it states IF it is initially used in NM, but, I’ve read in the comments and other places the opposite, as the GRT are exempt if it is NOT initially used in New Mexico. Which is true? Also, how can you say a freelance artist working out of state who is creating something new for each client to fit in with the clients needs falls in this category? The artist lives in New Mexico but say, is a designer who designs creative content for different clients, some work is done remotely while some is required to be out of state onsite for the particular job. Requiring these companies to register NTTC’s makes us look unprofessional, frankly, and charging tax on services is not common in our industry so it is not something that is competitive to do. Secondly, you mentioned reporting the internet sales/ work and then deducting it on the form. What deduction is this as there is nothing I can find that provides this process. Is it a code? Unfortunately, this law was enacted to generate revenue from large companies but it is affecting small business and independent freelancers here in NM, especially the arts and film in a negative way. Reading the handouts there are a ton of free passes for large companies such as Space X and oil and gas, and laboratories but as usual the small business people are paying for this. New Mexico is sorely lagging in attracting businesses here and this is one example why, and they are at the same time trying to position NM as an art/film friendly state. I am also being audited by Taxation and Revenue and they are telling me that everything you do whether in state or out of state is subject to GRT no exceptions!
Good morning, Samantha,
I’m sorry to hear you’re being audited. I’m gathering from your comments on our other blog articles that you have a lot of questions, are very unsure about what your gross receipts tax obligations are, and are looking for answers. I strongly recommend you hire a good tax attorney or tax accountant to help you through this audit. In addition to our firm, there are a number of very good, reasonably priced professionals here in New Mexico who can help you through the process, answer all of your questions as they apply to your situation, and go over the laws as they exist today.
This article, unfortunately, was written four years ago. While that might not seem like a lot of time, our legislature has updated the Gross Receipts and Compensating Tax Act at least twice in that span of time, significantly changing the definitions of Gross Receipts, Transacting Business in New Mexico, and so on — and curtailing many important deductions, as I mentioned in my response to your comments in a different article. That being the case, I’ve marked this article for deletion, as the information provided no longer reflects current law.
I hope you successfully resolve your audit situation. If you’d like to discuss it with me, please feel free to call my office at (505) 715-5700. I may be able to help, or I may be able to point you towards other resources that can.
All the best,
Ian M. Alden
Hi there
I’m a speaker coach and I consult remotely with most of my clients via Skype or Zoom or other on-line systems. Most of them live out of state and in different countries. I live in New Mexico.
Am I responsible for Gross Receipt Tax on these out-of-state sales?
Thanks for your help!
Hello Maria,
Thank you for that question. Under New Mexico’s Gross Receipts and Compensating Tax Act, receipts from services provided to an out-of-state buyer are deductible from the service provider’s gross receipts so long as the initial product of those services is used outside the State of New Mexico. This has two implications for the service providers: first, those receipts first need to be reported to the NM Taxation and Revenue Department through the service provider’s CRS reports. Once reported, the service provider recognizes the deduction in that same CRS report so as to not owe/pay gross receipts taxes on them. The second implication is that the service provider needs to collect either a non-taxable transaction certificate (an NTTC-OSB in this case) from the buyer of services, or “other evidence acceptable to” the NM treasury secretary. The phrase “other evidence” isn’t really defined anywhere and it’s not entirely clear what NMTRD will or won’t accept as evidence.
I usually recommend folks in your position work with a good CPA or other accountant to make sure you’re fully complying with your reporting obligations. If you are, and if you’re keeping track of who the out-of-state buyers are and getting either an NTTC or some other substantiating evidence from them, you should be in good shape.
All the best,
Ian Alden
I do some dropshipping from NM to a company based in Florida, then I do some wholesale business with Galleries in several states all located in America. Do I have to ask them for an NTTC to protect me from paying taxes? Thank you very much!
Hello, Thomas, and thank you for that question! If you are a New Mexico-based company selling products to out-of-state recipients, the process by which you’d deduct those revenues from your gross receipts depends a lot on how you process the sales. For example, if you are selling the products through an automated website ordering process to customers using an out-of-state address, the revenue is deductible from gross receipts under NMSA 1978, § 7-9-57.1. You’d need to keep good, consistent, and accurate records of your sales and shipments to validate the out-of-state deductions. By contrast, if you’re selling products to out-of-state recipients over the phone or through some other ordering process and if the risk of loss passes to the buyer only upon receipt of the products outside the State of New Mexico, the revenue is likely deductible from gross receipts under NMSA 1978, § 7-9-55 and NMTRD Ruling 422-01-1, issued April 05, 2001, as a sale in interstate commerce. In that scenario, you would need to have either a Non-Taxable Transaction Certificate from an Out-of-State Buyer (a NTTC-OSB) or some other written evidence that the transactions were sales in interstate commerce as just described. I hope that clarifies things!
– Ian Alden
My wife lives in New Mexico and was the president of a non-profit here in New Mexico. She was paid for services from this non-profit. The non-profit is a 501(c). She received a letter from the Taxation & Revenue that she owes Gross Receipts on her services. Is that true?
Hi, Abram.
Thank you for your question. Just because your wife was being paid from a non-profit doesn’t mean that your wife is excused from NMGRT or personal income taxes. She is certainly responsible for all of that, and should have charged the non-profit NMGRT. She could certainly still demand that the non-profit pay her for that NMGRT.
Larry.
I had another question. My wife and i have partnered with a Superfood company based out of California. We receive dividend checks for network marketing (people using our code to buy superfood from this company). We basically refer people to this company and we receive a commission if they buy. Some of the people who we refer (and who buy these superfoods) are from New Mexico. The superfood company does all the services (ordering, packing, shipping, etc.) Do we have to pay gross receipts on our income?
Hi Abram,
Thank you for that question. There are quite a few moving parts here. Without understanding them better and having some questions answered, I can’t weigh in on whether your income is subject to gross receipts tax or not. I’d advise you to seek the advice of a competent accountant, CPA, or other tax preparer who can look at the income on an item-by-item basis and advise you accordingly. It’s possibly that some (or potentially all) of your income in that scenario is subject to gross receipts tax.
All the best,
– Ian
I am a licensed psychotherapist in New Mexico as well as Arizona. I used to live in New Mexico and saw clients there but I just relocated to Arizona. I am seeing New Mexico clients using video conferencing from my Arizona residence/office. Do I still owe Gross Receipts tax to New Mexico?
Hello, Shelly, and thank you for that question! There are a few moving parts here, not the least of which is a pending change in the Gross Receipts Tax code.
As it stands right now, income from services provided out-of-state, the initial product of which is used in the State of New Mexico, is exempted from Gross Receipts Tax, meaning the income is not subject to NM Gross Receipts Tax and need not be reported through CRS reports. This is provided in NMSA 1978, Section 7-9-13.1. Based on the limited information I have, it sounds like the services you’re describing fall under that exemption.
That said, the New Mexico State Legislature changed the statute I just cited, with such changes set to take effect on July 01, 2021. Those changes eliminate the exemption, meaning the income from providing such out-of-state services to New Mexico residents may be subject to Gross Receipts Tax after the new law takes effect.
Thank you again!
All the best,
Ian Alden
This is a very helpful article, and your responses in the comments are also very helpful! I just recently started freelancing: I write documentation for software developers. I’m a resident of ABQ, NM, but my clients so far are tech start ups in San Francisco, CA.
I see that to qualify for an NTTC-OSB, the buyer must:
”
1. Maintain its principal place of business outside New Mexico;
2. Be registered with, or licensed by, the state or foreign jurisdiction in which the buyer maintains
a place of business for sales or similar taxes;
3. Not maintain a business location in New Mexico;
4. Not have receipts that are subject to New Mexico gross receipts tax; and
5. Not be registered as an agent to collect and pay over New Mexico gross receipts tax.”
per http://www.tax.newmexico.gov/Businesses/non-taxable-transaction-certificate-types.aspx
…So with respect to 4 (“no receipts subject to Gross Receipts”) let’s make it extreme:
Say I work for a company Z and produce documentation for them, which helps company Z’s customers use the product. Say company Z is business-to-business, based in California, and has customers all over the world and charges them millions of dollars.
BUT company Z did sell a measly $10 worth of services the year that I worked for them, to their ONE existing NM-based customer:
would that mean that company Z is NOT eligible for NTTC-OSB?
and what if the example is less extreme? Company Z is still a multimillion company, but they did say $10k selling services to a NM-based company the year I worked for them?
(And I don’t know if this has any bearing on the scenario but…remember that the work I did for Company Z is not something that Company Z charges for. None of company Z’s customers PAY for the docs I write, instead, they just learn from the docs how to use the product.)
thanks again for your thoughtful replies!
Hello, Frances, and thank you for that question! In order for an out-of-state business entity’s receipts to be subject to gross receipts tax, they need to be considered “gross receipts” under New Mexico statute and the business entity must have economic nexus in the State of New Mexico. Following the U.S. Supreme Court’s decision in the Wayfair case, New Mexico — along with 40+ other states — enacted legislation that establishes nexus for businesses without physical presence in the state. It reads:
“… For a person who lacks physical presence in this state, including a marketplace provider, “engaging in business” means having, in the previous calendar year, total taxable gross receipts from sales, leases and licenses of tangible personal property, sales of licenses and sales of services and licenses for use of real property sourced to this state pursuant to Section 7-1-14 NMSA 1978, of at least one hundred thousand dollars ($100,000).” NMSA 1978, § 7-9-3.3
In essence, there needs to be at least $100,000 of sales into the State in a previous calendar year in order for that business’ receipts to potentially be subject to gross receipts — if they meet the NM statutory definition of gross receipts, which defines them as “the total amount of money or the value of other consideration received from selling property in New Mexico, from leasing or licensing property employed in New Mexico, from granting a right to use a franchise employed in New Mexico, from selling services performed outside New Mexico, the product of which is initially used in New Mexico, or from performing services in New Mexico.” NMSA 1978, § 7-9-3.5
In your examples, it doesn’t sound like there is sufficient economic nexus to compel your out-of-state client to pay gross receipts tax, so I don’t believe requirement #4 for the NTTC-OSB is violated.
Thank you again for your question!
All the best,
Ian M. Alden
It is my first time filing self employed and am just learning about GRT, I already filed. I am a dancer in Albuquerque and a webcam model online with clients all over the world. Do I pay gross receipt tax on this income? If so what do I do to correct it since I didn’t know about this before I filed?
Hi, Ruby, and thanks for that question! Whether you need to pay Gross Receipts Tax on your income depends on whether (i) your income counts as “Gross Receipts” under the New Mexico Gross Receipts and Compensating Tax Act and, if so, whether it’s subject to any exemptions or deductions. While I can’t weigh in on your specific income without knowing a bit more about where it comes from (e.g., from dancing locally within New Mexico, from selling webcam content predominantly to out-of-state clients, etc.), I can tell you that there are a few deductions that apply to out-of-state sales that will probably reduce (if not eliminate) your gross receipts tax obligations — but you’ll likely still need to file New Mexico CRS returns to report the income.
I’d recommend you reach out to either a tax attorney (I’d be happy to speak with you) or to a qualified accountant in the State of New Mexico who understands how the laws have changed as recently as this year and how your income fits into all of it.
I’m sorry if this isn’t specific enough, but it’s important to be thorough in figuring out what you do (or hopefully don’t) owe. Thank you for reaching out!
All the best,
Ian M. Alden
I have a question: I have a Virtual Assistant business in New Mexico. I work out of my residence. The VA work I perform is for two firms located on the East Coast. I generate reports, call their clientele and schedule meeting/appointments for them. None of their business is performed in New Mexico. Do I have to pay Gross receipt tax?
Good morning, and thank you for that question. Unfortunately, I can’t provide a simple answer here when someone asks the question “do I have to pay Gross Receipts Tax”. Except in some limited, very clear-cut situations, the answer is usually “it depends”. In your case, it sounds like your receipts from that work may be deductible under Section 7-9-57 NMSA — meaning you’d still need to report the revenue through CRS returns before applying the deduction to reduce/eliminate your gross receipts tax burden. However, I can’t say with any certainty that the deduction applies without knowing more about the east coast firms and their exposure to NM Gross Receipts Tax, as that could impact their out-of-state characterization and your ability to claim the deduction.
In your case, I highly recommend you speak with a good tax attorney, CPA, or other qualified accountant to go over the situation. A good accountant can also help you prepare the CRS returns and go over some best practices for keeping records in case you ever need to prove the deduction to the New Mexico Taxation and Revenue Department.
I hope this helps!
All the best,
Ian M. Alden
Hello,
I received a managed audit offer- Gross receipts tax from the New Mexico Taxation and Revenue Audit and Compliance Division. For the years 2013-2017.
I have been a courier for those years. I receive a 1099-misc every year. I pick up products at a Logistics Warehouse and deliver to surrounding areas in New Mexico. I do not sell these products only deliver them. Am I required to pay Gross Receipts Tax.
Good afternoon, and thank you for your question. If you’re a service provider receiving 1099-MISC income for services provided in the State of New Mexico to New Mexico customers/clients, your receipts are likely subject to Gross Receipts Tax. I can’t say definitively without knowing more about your situation, but, typically, couriers meeting that description are treated as service providers much like any other.
What’s interesting to me is that you were offered the change to engage in a Managed Audit. Under the Managed Audit program, a taxpayer is able to assess their own tax liability and pay it without having to pay penalties and interest. I’d certainly recommend speaking with a qualified tax attorney, CPA, accountant, or other tax professional to help you understand your rights, discuss your situation, and help you through the process — this may be a good opportunity for you to get current on your taxes (if, indeed, you owe them) while saving some money on penalties and interest.
All the best,
Ian M. Alden
Hello, I’m an artist (landscape oil painter) in New Mexico. I just received a notice of Managed Audit offer for Gross Receipts Tax from the N.M. Taxation and Audit Compliance Division for years 2014-2017. When I first moved to New Mexico in 2015 I was told I needed a CRS number to sell art work. I obtained a CRS number in April of that year. I’m required to file gross sales every 6 months.. However, I don’t sell my paintings directly to the public. My work is sold by various galleries in the and out of the state. Since I am not the point of sale I don’t collect the sales tax rather the galleries do. After a sale, the gallery sends me a check for my agreed to percentage of the sale. I report that income as my gross income on my federal and state income tax returns but I don’t report it as CRS gross sales receipts since I didn’t make the actual sale or take in the sales tax. So, for approximately 5 years I’ve filed $0.00 each reporting period for gross sales. Now, the state has used my federal schedule C and 1099s (from out of state sources) gross income to calculate an amount due plus penalties for what they clam I should have paid. Am I required to report gross sales when it’s the gallery making the sale? Do I need an attorney in this situation or can I explain my case as I have here?
Good afternoon, and thank you for your question. Before I get into the specifics of your situation, it’s worth pointing out that the article you’re commenting on is quite a few years old. I’d suggest having a look at Gross Receipts Tax in the Digital Age and, more specifically, the definition of Gross Receipts in that article. Typically, revenue from the sale of an artist’s services or an artist’s tangible work are considered Gross Receipts for purposes of New Mexico’s Gross Receipts Tax.
In your case, with regard to the sale of your work to out-of-state buyers, those sales may fall outside the definition of Gross Receipts because you are selling tangible property outside the State of New Mexico. With regard to the sale of your work to in-state buyers, that revenue may be deductible under NMSA § 7-9-47 (Deduction for sale of tangible personal property or licenses for resale) if the New Mexico-based gallery (or galleries) in question can provide you with a Nontaxable Transaction Certificate (NTTC) for the tax years at issue showing that they purchased the artwork for resale. As I’ve mentioned in previous articles, any revenue subject to a deduction (e.g., the one mentioned above) must still be reported in CRS returns.
In any event, given that you’re already in the audit stage, you’d be well-advised to seek the counsel of a good tax attorney or tax accountant who can review your situation and help you through the audit process. You may be able to reduce (or even eliminate) any Gross Receipts Tax obligation on your art revenue, but you’d need to follow certain audit procedures to get there. Time is of the essence in NMGRT audits — you typically only have 10 days from the date NMTRD proposes an adjustment to dispute the proposal in an informal manner, followed by 90 days to formally protest an assessment once it’s been issued.
Please feel free to reach out to our firm if you’d like to speak with a tax attorney. We might also be able to provide recommendations for good tax accountants if appropriate.
All the best,
Ian M. Alden
We are Texas residents who are considering working with an Angel Fire home builder to build us a vacation, part-time home. On the contract he has shown us is a very sizable expense item (one of the largest in fact) for “TAX” @ 7.7708%. Is this something we actually have to pay him? We have built several homes in Texas and have never had a GRT or Sales tax expense item on the construction of a home. In this case it is almost $50,000. Your help on clarifying/confirming this matter is appreciated!
Hi, Michael —
New Mexico’s tax system is a bit unusual to most folks who haven’t encountered it before. Most states have a sales tax imposed on the buyer of goods that the seller collects from the buyer and pays to the state. New Mexico, however, has a Gross Receipts Tax imposed on the seller/provider of goods and services on the value of what they’re receiving from a buyer. Depending on where in New Mexico the service provider is, the tax rate can range from 5.125% to 9.4375%. The rate for sellers/providers in Angel Fire is 7.7708%.
As I mentioned, this is a tax imposed on the seller/provider of services, but the service provider is allowed to — and frequently does — pass the tax along to the buyer/customer as a separate line item on the invoice. This is what the home builder has done here. Since the tax is being imposed on the home builder, it doesn’t matter that you’re Texas residents — the home builder must still pay the tax on the value of what you’re paying them. That’s why they’re passing the cost of the tax on to you despite you being Texas residents.
Thank you for your question. I hope this clarified things!
All the best,
Ian Alden
I am an independent contractor for a MLM company that is headquartered in another state. I earn commissions on orders placed by people whom I enrolled with the company. The enrollees are based both in New Mexico and other states. The MLM handles all other aspects of the order processing and fulfillment process. Orders are placed on the company’s website and fulfilled by the company outside of New Mexico. Additionally the company collects and remits any sales tax or gross receipt taxes that are applicable based on the location/jurisdiction of the buyer, including the gross receipts taxes applicable on the sales placed by New Mexico residents.
I recently received an assessment for the 1099s I received during tax years 2015 – 2017 for all commissions earned by all orders placed by my enrollees, no matter the state in which they live. Additionally due to the way the compensation plan works it is almost impossible to track what portion of the commissions were derived from sales to NM residents vs non NM residents.
Since the MLM company collects and remits gross receipt taxes from the the New Mexico orders to the TRD and since the MLM company is based out of New Mexico. Is there anything that I can provide to be exempt from the gross receipts taxes. Is there anything that the MLM company can provide me to help my case. NTTC or other documentation?
Hi, Brian —
Thank you for that question. I won’t be able to give you a great deal of advice here, but I can at least try to clear up a few points. New Mexico assesses a Gross Receipts Tax on “Gross Receipts”, which are defined for this purpose as “the total amount of money or value of other consideration received from selling property in New Mexico, leasing or licensing property employed in New Mexico, granting a right to use a franchise employed in New Mexico, performing services in New Mexico, and selling research and development services performed outside New Mexico, the product of which is initially used in New Mexico.”
Notice I emphasized two different parts of that definition? That’s because New Mexico treats each transaction in a series as separate transactions. What that might mean here — and I can’t really guarantee it without knowing more about your situation and doing some research — is that, even though the MLM company collects and remits gross receipts taxes from the sale of products to New Mexico buyers, you’re being assessed Gross Receipts Tax on your earnings from the MLM company because they believe you’re being paid for services you provide to that MLM provider. This may be in error, or it may not.
In any event, I highly recommend reaching out to a good tax attorney as soon as possible to address the assessment if you haven’t already. I hope this helps!
All the best,
Ian M. Alden
I sell a product online. All sales are completed out of state. I was told I need to file Gross Recpt’s, but would not owe the tax. Would I simply show my GR, then show the same amount as a deduction? If so, How does one prove (show a reason) for a deduction?
Hi, Neal, and thank you for that question. Once upon a time (and until July of this year), our Gross Receipts Tax code had a section — Section § 7-9-57.1 — that allowed the deduction from Gross Receipts of sales made by a New Mexico business to an out-of-state buyer through that business’ website. It was one of the simplest parts of our Gross Receipts Tax code that gave businesses some degree of certainty. That being the case, our legislature, without announcement or explanation, decided to repeal that provision last year. We’re now left to figure out whether online sales to out-of-state buyers are now taxable and, if not, why not.
Per NMSA § 7-9-55, “receipts from transactions in interstate commerce may be deducted from gross receipts to the extent that the imposition of the gross receipts tax would be unlawful under the United States constitution”. Sound vague and confusing? Believe me — it’s confusing to us attorneys as well. The best authority I can point to in claiming that online sales fall under that category is a twenty year old ruling by New Mexico’s Taxation and Revenue Department, Ruling 422-01-1, which provides that a retailer’s out-of-state sales are considered deductible transactions in interstate commerce so long as the risk of loss is assumed by the buyer outside the State of New Mexico. Still uncertain? So are a great many of us.
That said, assuming that the transactions qualify for that deduction, you would still report the revenue/”receipts” from them in your regular Combined Reporting System (CRS) returns and then apply the deduction in those returns, thereby reducing the tax owed.
Please keep in mind that I’m making a number of assumptions about your situation (not the least of which is that you’re based in New Mexico), and so this advice may or may not fully apply to you.
I recommend you talk with a good accountant or tax attorney to go over your situation and make sure you’re properly reporting and paying what you need to.
Thank you again for the question!
– Ian
Thank you for the info! I moved to New Mexico last year and am new to Gross Receipts Tax reporting. I am an artist who sells through an out of state gallery as well as to individuals in New Mexico and other states. After reading the current confusion about online sales, and poring over NM documents, I phoned into the New Mexico Tax authority. After giving one answer (no, not deductible) and then another (yes, out of state sales are deductible), the person I spoke with put me on hold to ask a supervisor. I was then told that painting sales made (and shipped) to persons out of state are NOT deductible. Also, money made from out-of-state artwork sales (or painting rentals) through an out-of-state gallery, even if a sales tax from that state was collected, is NOT deductible.
I do hope some clear guidance from the state is given. Anecdotally, artists I know here deduct out of state sales.
My question for you is, how much weight should I put on answers received from a phone call to a state employee? And is there any new conclusion among tax attorneys regarding online sales to out of state buyers?
(For the record, I went ahead and paid the gross receipts tax on everything).
Thank you!
Hello, Shawn, and thank you for that question! Most of the employees you speak to at the New Mexico Taxation and Revenue Department are not attorneys and are not in a position to offer legal advice as to whether your transactions are taxable. I have heard from some former employees that they were actually prohibited from offering that sort of advice to taxpayers. I’d suggest that you shouldn’t put much weight in the advice you receive from NMTRD employees. That isn’t meant as a slight or insult against them. Rather, it’s an acknowledgment that they themselves do not intend for you to rely on their advice. At the end of the day, the actual tax laws govern — not the interpretations of NMTRD employees.
With that in mind, there are deductions for transactions in interstate commerce when a New Mexico business is selling to an out-of-state buyer, the property is not received by the buyer in the State of New Mexico, and the risk of loss passes to the buyer outside the State of New Mexico. See Section 7-9-55 NMSA 1978, Section 3.2.213.12 NMAC, and NMTRD Ruling 422-01-1. If your transactions fall into this category, you may be entitled to use that deduction. You’d still need to report the receipts in your CRS returns, but the deduction could then be applied to reduce the taxable gross receipts.
If you want to be sure, I’d recommend speaking with a good accountant or tax attorney who can get all of the facts from you and advise on which transactions do or do not qualify for that deduction. Thank you again for your question!
All the best,
Ian Alden
Thanks for this article. Could you clarify a bit? My LLC is in New Mexico (because that’s where I was living when I registered it, plus I was born there ), but all of my clients are from OUTSIDE of New Mexico, and I actually currently live in Arizona (though I have not officially changed my LLC address. If I did that every time I moved state or even country, it would be too much since I am a bit of a digital nomad).
I provide online social media marketing, and no service I provide has to do with New Mexico in any way. I help clients set up advertising campaigns online, and none of the clients (so far) are from New Mexico. If the client were to be from New Mexico, of course I would charge them GRT.
But does somebody in my situation need to charge out-of-state clients GRT, simply due to my LLC being registered in NM? Or does the fact that my service is not related to NM in any way, is not actually in ANY physical location 100% online), and my clients are all out of state mean that I can forgo GRT for those clients?
Thanks in advance for any clarity you can provide!
Hello, and thank you for that question. The answer is going to be a bit more complicated than I can properly offer in this response. It may be yes (though I think it unlikely), it may be “no, but you still need to file CRS returns every 1, 3, 6, or 12 months”, or it may be “no, but you need to move your LLC to the state in which you’re actually providing services in order to comply with that state’s requirement that you register there if you’re transacting business within state lines”. I’d need a few more details before I can give you a proper answer.
You may want to consider a 30-minute tax attorney consultation to discuss your situation in more detail and get an answer with a bit more certainty behind it. You can book it here: Tax Attorney Consultation.
Thank you for your question, and I hope we get to speak with you about it in more detail!
All the best,
Ian M. Alden
Hello. I sure hope you are still answering this feed. We are a contractor that usually buys all our materials in NM and does work in NM. Currently we are doing an addition on a house in Texas. The home owner is buying all materials and we are just charging labor for the building of the additon.
In doing our CRS taxes I put the labor as out of state location. It is charging us 5% NM tax for out of state work. Is this correct?
Hello —
Thank you for reaching out. As a general rule, services provided outside the State of New Mexico do not fall under the definition of “Gross Receipts” as provided in § 7-9-3.5 NMSA 1978, while services provided in the State of New Mexico to out-of-state buyers are deductible under § 7-9-57 NMSA 1978 if the initial product of those services is received and used outside the State of New Mexico. In your case, it sounds like the services you’re providing in Texas do not fit the definition of Gross Receipts and so would not be reportable in your Gross Receipts Tax returns.
Keep in mind that this is a very surface-level analysis of your situation based on the couple of sentences you gave me. If you’d like more clarity or certainty on this issue, you might want to speak with a tax accountant, CPA, or tax attorney (we offer a flat-rate tax attorney consultation on our website here).
I hope that helps!
All the best,
Ian M. Alden, Esq.
I have been having trouble finding the answer for this one. If there is an online consulting business located in NM, getting their clients and getting paid through another LLC located in Delaware. Do those sales need to be reported on gross receipts tax return in New Mexico? From my current understanding I would not need to report those sales but would be responsible for reporting to Delaware, (which does not charge gross receipts). Or do I report them and use a deduction code? Because services are being paid by this LLC located in DE and not directly by the client, is the clients location factored in or do I just need to worry about the LLC that I am transacting with?
The second question is about Amazon sales. I understand that taxes are collected and remitted by Amazon. But when I am filling out the Gross Receipts Tax Return online, am I entering ONLY the sales to NM residence with the deduction code 7-9-117 Marketplace Seller? Any other sales are reported to their corresponding states? I have never entered in Amazon sales on a return.
Thank you so much for all the help that I’ve already read throughout this feed. Any information is greatly appreciated!!
Hi Jessica —
Thank you for reaching out. Sales to out-of-state buyers, assuming the initial product of those services is received and used outside the State of New Mexico, are typically deductible, per § 7-9-57 NMSA 1978, from Gross Receipts Tax. The word “deductible” is key, as it means you must report the revenue on your Gross Receipts Tax Returns, report the deduction, and then pay tax on the net taxable amount (if any).
That said, the receipts from sale of services to a Delaware LLC may still be taxable if those services are being resold by the Delaware LLC to New Mexico customers, as you would then fail to meet the standard for the Out-of-State Buyer deduction under § 7-9-57 NMSA. Those receipts may also be deductible as a service being sold for resale if the Delaware LLC buying those services from you is, in turn, charging gross receipts taxes to the customers, as the State of New Mexico only wants to tax that transaction once — but if the Delaware LLC isn’t paying the tax on your services being provided to any New Mexico customers or clients, the responsibility falls on you to pay the tax regardless of whether it’s ever passed on to the Delaware LLC or to the customer.
Finally, with respect to Amazon sales, Amazon is typically responsible for paying the Gross Receipts Tax on your behalf if you’re an Amazon seller. That’s because Amazon is considered the Marketplace Seller under the tax law — it’s much easier for the State to go after one entity for sales on their platform than it is to go after every individual who sells through Amazon, and it’s much easier for Amazon to collect sales tax on its sellers’ behalf, tally it all up, and pay it to the states in batches. Following the Supreme Court’s South Dakota v. Wayfair decision, this is typically how it’s handled across the country.
Confusing? Our Gross Receipts Tax system is rife with these sorts of problems, so I’d strongly recommend you talk with an attorney to go over your situation in more detail and get some custom-tailored legal advice. You might also consider enlisting the help of a qualified New Mexico CPA to help you with preparing and filing your Gross Receipts Tax returns, as there’s a lot of nuance involved.
Thank you again for reaching out!
All the best,
Ian M. Alden, Esq.
Hi there — I’m a counselor who offers services online. My clients are located all over the country. Do I have to charge them NM state sales tax? And if I haven’t been doing that, how do I go about retracing that and submitting it to the state? Especially if I cannot retrieve sales tax from them by now?
Hi Danielle —
If you’re based in New Mexico and you’re providing remote counseling services (over the phone or using video-conferencing software, for example) to people outside the State of New Mexico, your receipts may be deductible under § 7-9-57 NMSA 1978, but you’d still need to report that income to the State. You can file your Gross Receipts Tax Returns using the New Mexico Taxation and Revenue Department’s online system: the Taxpayer Access Point, accessible here: https://tap.state.nm.us/.
If you have other questions or want to take a deeper dive into your tax situation, you might consider booking a Tax Attorney Consultation with us. Thank you for reaching out!
All the best,
Ian M. Alden, Esq.
Hello
I lived in NM from 2015-2017 and got a letter saying I owed GRT Taxes. I filed normal personal taxes on time and paid accordingly, had no idea anything about GRT. I did some IT consulting work for a company in N.J, I never did any work or had any sales in NM. I received a 1099 MISC and included in my personal income which I paid taxes to the State and Federal Government. Now , how am I too prove that my services were for the company in N.J ? All I can do is provide official letter showing company is based there and has no ties to New Mexico.
Hi David,
You do not necessarily need to prove the work was for an out of state entity, you need to prove that the type of work done fell outside the remit of the parameters of the GRT Tax. This will require a closer examination of your particular situation including the amounts owed and the specific services you provided. This is something our firm can help you with, I will provide a link below for a tax attorney consultation I think could be helpful for you.
https://www.l4sb.com/services/tax-attorney-consult/