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What kinds of sales are not subject to N.M. gross receipts tax?

There's not a simple answer. (Nothing is simple in taxes!) There are 2 categories of sales that are not subject to New Mexico gross receipts tax: exemptions and deductions. From a practical point of view, sales in both categories might be thought of as "exempt"; but each category has different rules on whether and how to report them.

Exemptions

There are over 40 exemptions listed in New Mexico law. They apply to the gross receipts of specific organizations or under defined circumstances. An exempt receipt is not taxable and does not require reporting.

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 also examples of exempt receipts as are many transactions with Indian nations, tribes or pueblos or their agencies or members if the transaction takes place on the tribe's territory.

Important. If all receipts of a business or organization are exempt, the organization is not required to register with the N.M. Taxation & Revenue Department unless it needs to apply for nontaxable transaction certificates, or if it must do so for another tax program such as employees state income tax withholding tax.

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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 N.M. Taxation & Revenue Dept. To ensure that no tax is due on sales in the deductions category, there is a line item 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 New Mexico, sales to manufacturers, sales of groceries, sales of construction materials and services to persons engaged in construction business, sales of tangibles - but not services - to government agencies and (501(c)(3) non-profit 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 N.M. Taxation & Revenue and maintain proof of deductions taken. The best proof is a Nontaxable Transaction Certificate although other evidence may be acceptable.

 

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Tip. Do not confuse deductions for gross receipts tax purposes with business expense deductions when reporting the federal income tax for your business. 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 to file a return showing the gross receipts and deductions.

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