Saturday, March 15, 2008

New Mexico Gross Receipts Tax

Hi.

I'm writing for state specific advice. I've been a freelance part-time alternative builder, sometimes handyman for years. I've been out of the tax system for years also, but now I'm going to reenter. That's not the question though.

My residence is here New Mexico and I did a few small jobs this fall. I have already e-filed my federal (only SE tax due), and was starting to do the same for state when I saw, to my horror, that New Mexico appears to charge a "Gross receipts tax" Gross is the word ! It's a tax on all services (not just goods), it appears.

My question is this: Do micro biz independents really have to pay this too? No exemptions that I'm missing? I earned $4000 last year and it appears that even though I'm at half the poverty level, I have to pay 7.25% on every dollar I charged, BEFORE my expenses. I'm shocked. I'm already paying the 15% SE tax. That brings up my second question: Do you know how the state determines one's presence here? I travel a lot (mostly recreation) and one could say I'm here more or less, depending on what's best... do they have a way of checking?

Thanks, Steve

New Mexico


Hi Steve,

New Mexico Gross Receipts Tax -- NMGRT -- is a bit like sales tax and it gets paid to the state of New Mexico only once on a service or product.

Think of it this way: If you fix my window you charge me NMGRT on your fee for labor. You send that tax to NM.


If you purchase a new window to install for me then you would charge me tax on both the window and your labor. However, when you bought the window, were you legit, you would give the window seller a certificate to show that his selling you the window was not the final sale because you were then going to sell it to me so you would not have to pay NMGRT on that purchase.

And, yes, you do have to pay the tax. If you intentionally don't pay it it's fraud. How will they find you? Well, what if that window repair you did for me was for my office and I wrote off the expense on my tax return? And then I was audited. Besides, you drive on the roads that that tax helps to maintain.

My friend, Shirley George Frazier, has a good blog post on state sales tax in general. Check it out here.


Cheers!

June

2 comments:

cruces7 said...

June,

Good answer. The county in NM I live in has 6 different rates for the gross receipts tax. We provide service in a city. Some of our customers are in the county which has a lower rate. The county client wants to pay the lower tax rate. I say since the tax is actually levied on the giver of service rather than the consumer we charge the rate where our business is located. Who is correct?

June Walker said...

Hello cruces7,

Tax is based on where the work is is done or service is provided.

Most people who have more than two places where the work is done, well, let's say they compromise. Pick a flat % and do that everywhere. That's not what you are supposed to do but in a state where the rate changes if you cross the street it sure saves a lot of time and effort.

Of course, it also depends on the cost of the work. Large fees and a couple hundredths percentage point make a difference.

-- June