Cost of Doing Business

Gross Receipts Tax
New Mexico 's gross receipts tax differs from a sales tax in that it is levied on the total amount of money or other consideration a business receives from four kinds of transactions in New Mexico:

• selling property in New Mexico , including tangible personal property and such intangibles as licenses, trademarks, franchises, patents and copyrights;
• leasing property used in New Mexico
• performance of services in New Mexico (construction is a service that includes all the ingredient and component materials and subcontracted construction services), and
• sale of research and development services performed outside New Mexico when initial use of the product of the R & D service occurs in New Mexico

The gross receipts tax is not the customer's tax, but rather the business's liability. Statutes do not prevent the business from recovering its tax costs from the customer just like any other overhead expense. This is the prevailing practice. The law presumes all transactions taxable unless statute provides a specific exemption or deduction.

Exemptions include

• wages of employees
• receipts from interest and dividends
• vehicles and boats
• receipts of 501C(3) nonprofit groups

Deductions include

• sales-for-resale (goods, services, leases)
• exports (when title and risk of loss pass outside New Mexico )
• sales by suppliers of components in manufacturing processes
• all construction materials and construction services sold to a construction contractor for use in a construction project
• receipts from selling tangible personal property to governments (including equipment bought under industrial revenue bonds) or 501(c)(3) organizations but generally receipts from performing services, which includes all construction and receipts from leasing, are not deductible.

A basic five percent (5%) state gross receipts tax is supplemented by local option gross receipts tax available to all counties and municipalities. Tribal taxes imposed by certain pueblos are included. The state collects the taxes at the same time and in the same manner as the state gross receipts tax and then distributes the counties' and municipalities' share for their use. Because the taxes are optional, they range from 5.125% to 7.25% depending on location. Businesses report according to their locations. There are some exceptions for point-of-delivery businesses like utilities and construction services that report and pay according to the rate in effect at the delivery or construction site.

The tax is on the businesses gross receipts. Whether the receipts (net of returns and allowances) are taxable depends on whether the business can take advantage of an exemption or deduction. Transactions among affiliates generally will be treated no differently than transactions among unrelated parties.

For a full list of exemptions, please see FYI-105, "Gross Receipts and Compensating Taxes, An Overview" available from the Taxation & Revenue web site.

Corporate Income Tax
Corporate income tax is imposed only on the net income of domestic corporations or foreign corporations' business within the state or from the state, or deriving income from property or employment within this state. "Corporation" means corporations, joint stock companies, real estate trusts organized and operated under the Real Estate Trust Act and limited liability companies and partnerships taxed as corporations under the Internal Revenue Code. "Net income" is federal taxable income adjusted to exclude amounts not taxable by states.

The corporate tax structure levies taxes only on net income of the corporation's business within the state. Separate filing is permitted. There is a double-weighted sales apportionment factor option for manufacturers. The corporate income tax piggybacks onto the Internal Revenue Code. The rates, based on federal taxable income rates, are:

• Up to $500,000: 4.8%
• $500,000-$1 mil.: $24,000+6.4% over $500,000
• $1 million plus: $56,000+7.5% over $1million

Please see FYI-350, "Corporate Income Tax and Corporate Franchise Tax." (Taxation & Revenue Department web site)

Property Tax
New Mexico 's property taxes are among the lowest in the country. The median value of an owner-occupied property in New Mexico is approximately $108,000. The statewide average property tax on a property assessed at $108,000 is approximately $900. Taxes on a property with $100,000 market value in 2003 are about $1,000 in Albuquerque , falling to about $260 in rural parts of the state.

Most property is appraised by county assessors in the county in which it is located. The Taxation and revenue Department assesses certain types of non-residential property, however - typically industrial property that extends across county boundaries, including property associated with railroads, pipelines, communication systems and mineral extraction. Taxes are imposed on one-third of assessed value, which is typically between 80 and 100 percent of market value. Property taxes are collected and distributed by county treasurers. Major revenue recipients include counties, municipalities and school districts.

Rates vary substantially and depend on property type and location. Rates applicable to residential property range from about $9 to $38 per $1,000 of net taxable value after exemptions are taken. Non-residential property tax rates range from $12 to $41 per $1,000 of net taxable value. The statewide average rates are about $26 per $1,000 for residential property and $29 per $1,000 for non-residential property, or about .8% of assessed value. Taxable value is one-third of assessed value.

Property-in-transit through the state or warehoused for delivery out-of-state is exempt.

Severance Taxes
New Mexico taxes the extraction of minerals from its soil from a series of taxes, generically called severance taxes. The two main groups are (1) taxes on oil, natural gas, liquid hydrocarbons and carbon dioxide and (2) taxes on hard-rock minerals, including copper and coal. Of the two groups, the oil and gas taxes account for over 90% of the revenues from severance taxes.

Oil and Gas: In this group, four virtually identical taxes are collected monthly on production; one is collected annually on production, and one is collected monthly on processing of natural gas. About 60% of the total derives from natural gas. (These taxes are all ad valorem taxes i.e., assessed as percentages of product value.) The wide and frequent swings in natural gas and oil prices are reflected in the continuous fluctuation of severance tax revenues.

Hard Rock Taxes: There are two, the severance tax and the resources excise tax. Resource excise tax is generally 0.75% of the gross value; copper is an exception at 0.25%. The severance tax on coal is a unit tax of either $1.18 per ton or $0.57 per ton, depending on when the contract was signed; all other minerals face ad valorem rates varying from 0.125% to 2.5% on net value (gross value less large deductions which vary by type of mineral) for use; hence its name.

Worker's Compensation Tax Fee
This fee is collected by the Taxation and Revenue Department on behalf of the Worker's Compensation Administration. Fees are $4 per quarter for every employee at end of quarter; $2 from employee via withholding plus $2 from employer.

Website for the Workers' Compensation Administration: http://www.state.nm.us/wca/

Unemployment Insurance Contribution
Employers pay unemployment taxes to state and federal governments, which support the Un-employment Insurance (UI) Program. The law prohibits an employer from deducting money from employees' wages. A new employer in New Mexico starts out with a UI tax rate of 2.0 per-cent and remains at that rate for a minimum of four years. After four years, each employer is given an experience rating which can cause a rate to increase or decrease. Employers use the Taxable Wage Base to calculate their employment insurance taxes. The Taxable Wage Base for the year 2003 is $16,600.

Personal Income Tax
The New Mexico personal income tax is based on federal adjusted gross income. Allocation and apportionment of income among states is governed by UDITPA factors of relative property, pay-roll and sales in New Mexico . Currently tax rates range from 1.7% to 7.7% but are being phased down to 1.7% to 6.8% (2004), 1.7% to 6.0% (2005), 1.7% to 5.3% (2006) and 1.7% to 4.9% (2007).

New Mexico imposes a tax on the net income of every resident. Residents are taxed on the net income from employment, unearned income, gambling, pensions, annuities, and income from real or personal property in this state or from businesses located in this state. Non-residents are taxed on the net income from property, employment or business in New Mexico. New Mexico 's personal income tax "piggybacks" on the federal return and uses the federal adjusted gross in-come figure as its base. Net income usually equals federal taxable income, although some special deductions are available. New Mexico uses the same dollar amounts as the federal government for personal exemptions, standard deductions and itemized deductions. The 2003 New Mexico Legislature cut the capital gains by half over a period of five years.

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Last Updated: Sunday, 30-Mar-2008 17:05:11 Mountain Daylight Time