I received a letter that I'm being audited for gross receipts tax. What's this all about?

The N.M. Taxation & Revenue Dept. (TRD) compares gross receipts (aka sales) on Schedule C of sole proprietors and some LLCs report to gross receipts reported to the TRD for gross receipts tax (GRT) on form CRS-1. They also compare payments reported to the IRS on Forms 1099 to the CRS-1s. When the amount reported to the TRD is less than Schedule C gross receipts or 1099 payments, they send the business a letter advising them that the TRD has opened an audit.The letter also indicates gross receipts that may be assessed.

What are the most common circumstances that cause this mismatch?

The business is not registered with the TRD

This can simply be because the business did not do its homework. If it had, it would have discovered the requirements for business's doing business in New Mexico to report their gross receipts and pay gross receipts tax. 

A more understandable reason is that the business in located outside of New Mexico and has customers in New Mexico. 

Or the business is operated by individuals who moved to New Mexico and are not familiar with the GRT.

The business fails to report sales that are not subject to GRT.

It's a common misunderstanding that, if sales are not subject to GRT, they don't need to be reported. Such sales are either exempt or deductible. Think about it. Sales on Schedule C and 1099s include sales that are not subject to GRT as well as sales that are taxable. Not reporting all sales will cause the mismatch.

What's the solution?

Simply report all sales and then deduct those that are not taxable.

The TRD has a very good publication that expands on these matters. 

If it looks like you may owe GRT, you may be able to qualify for a Managed Audit and avoid penalties and interest. This opportunity is explained in the initial audit letter.