Larry Hess CPA
Do independent contractors owe New Mexico gross receipts taxes?
Businesses in New Mexico receiving income from services provided to buyers located within New Mexico are subject to N.M. Gross Receipts Tax (GRT). This includes income from self-employment and independent contractor income. This is different from sales tax in most other states that apply only to the sale of tangible property.
Note: Gross receipts from the sale of services to non-profit organizations and government entities are subject to N.M. Gross Receipts Tax even though those organizations do not have to pay tax on the merchandise they purchase.
Businesses must register
If you live in New Mexico and receive income from your services (unless you receive a Form W-2) you are required to register your business with the N.M. Taxation & Revenue Dept. (TRD), report your gross receipts and pay Gross Receipts Tax.
Overlooking this tax can be costly
Those businesses that do not report their gross receipts to the TRD are almost certain to be audited. That's because the department receives information from the IRS about anyone living in New Mexico who files Schedule C or receives a 1099-NEC. The TRD then compares gross receipts (aka sales) on the federal income tax return and 1099s to gross receipts reported to the state. A discrepancy will cause the TRD to audit the business's gross receipts and propose a tax plus a penalty and interest.
Important: A business that employs the services of an independent contractor will usually be required to send you a Form 1099-NEC and file a copy with the IRS as well. As a consequence the IRS will expect you to file a Schedule C, Profit or Loss from Business, with your Federal Individual Income Tax Return.