What is a Non-Taxable Transaction Certificate and why would I need one?
Non-Taxable Transaction Certificates (NTTCs) are a mechanism to help ensure that gross receipts tax (GRT) is not paid twice on the same sale. They are issued by buyers or lessors to sellers or lessees and the best proof a seller can have of deductible gross receipts.
There are different types of NTTCs that are used in different circumstances. The most common are:
Type 2 - Sales of tangible personal property or licenses for resale or will become an ingredient in or component of a manufactured product.
Type 5 - Sales of services for resale if the sale is subject to gross receipts tax.
Type 6 - Sales of construction materials and services that will become an ingredient in a construction project upon completion.
Type 9 - Sales to non-profits only for purchases of tangibles. Note: Sales of services to non-profits are taxable.
Seller located outside of New Mexico. A seller located outside of NM is liable for GRT if they have sales of more than $100,000 per year to customers located in NM. There is not an NTTC for a seller a seller located outside of NM unless the seller is registered with the NM Taxation & Revenue Dept. The GRT rate in those cases is the state rate, 5.125%.
Buyer located outside of New Mexico. There is also not an NTTC when the buyer is located outside of NM. Sellers must be able to prove that the initial use of the product or service is outside of NM or the buyer takes delivery of the product or service outside of NM. Proof might include documents such as billing and shipping records or the Multi-Jurisdictional Uniform Sales and Use Tax Certificate issued by the seller.
Avoiding double-taxation of the same sale. Example: A wholesaler sells to a retailer. To avoid double-taxation, the retailer gives the wholesaler an NTTC Type 2 that states the wholesaler’s product is being resold by the retailer. When the wholesaler files gross receipts tax reports, they report sales to the retailer and then deduct the amount they sold to the retailer from their total to determining taxable gross receipts. In this scenario only the retailer pays the tax.
Important: The taxation of services is a key feature of gross receipts tax that sets New Mexico’s version of sales tax apart from most states’ sales tax. It can be a trap for an uninformed seller.