What kinds of sales are NOT subject to N.M. gross receipts tax?
There's not a simple answer. (Nothing is simple in taxes!) First, there are 2 broad categories of sales that are NOT subject to N.M. gross receipts tax: exemptions and deductions. From a practical point of view, sales in those categories can be thought of as "exempt." Not only are there detailed criteria for determining whether a particular sale fits into one category or the other, each has different rules on whether and how to report them.
One category is called exemptions. There are over 40 exemptions listed in New Mexico law. They apply to the gross receipts of specific organizations or under defined circumstances.
The more common organizations to which exemptions apply are governmental agencies, non-profit (501(c)(3)) organizations, homeowners associations, and social organizations. Wages received by employees and sales of agricultural products are examples of exempt receipts.
An exempt receipt is not taxable and does not require reporting. If all receipts of a business or organization are exempt, it is not required to register with the NM Taxation & Revenue Department (TRD) unless it wishes to apply for nontaxable transaction certificates, or unless it must do so for another tax program; for instance, to withhold and remit withholding tax for employees.
Best practice. A business, other than one that is exempt from federal income tax, with 100% exempt gross receipts should register, report and deduct exempt sales. When the TRD compares gross receipts reported on a business's federal income tax return with reported gross receipts there will still be no tax and an audit letter on a discrepancy will be avoided.
Also read I received a GRT audit letter.
The other category is called deductions. New Mexico state law authorizes nearly 100 deductions. A deduction is a sale that is not subject to the tax but must be reported to the TRD. To ensure that no tax is due on sales in the deductions category, there is a line on the reporting form for subtracting deductible sales from total sales.
Examples of deductions are sales for subsequent resale, sales to customers located outside of NM, sales to manufacturers, sales of groceries, sales of construction materials and services to persons engaged in construction business, sales of tangibles to government agencies and non-profits ((501(c)(3) organizations), sales of prescription drugs, gross receipts of certain health care providers, gross receipts from transactions in interstate commerce and gross receipts of marketplace sellers.
A business with deductible receipts must register with the TRD and maintain proof of deductions taken. The best proof is a nontaxable transaction certificate (NTTC) although other evidence may acceptable.
Also read Non-taxable transaction certificates.
Tip. Do not confuse deductions for gross receipts tax purposes with business expense deductions for federal income tax. Unless you understand this difference, you may ask why you have to pay gross receipts tax when your business had a loss on their federal tax return after subtracting expenses?
Important. Even if all receipts of a business are 100% deductible, the business is still required file a return showing the gross receipts and deductions.
Also read Is GRT a deductible business expense?.