I received a letter telling me I owe gross receipts tax for prior years. What's this all about?

The letter is usually called Notice of Intent to Assess Gross Receipts Tax. It means you're being audited. It does not mean you already owe the tax.

How did this happen?

This situation came about because the N.M. Taxation & Revenue Dept. received from the IRS the sales you reported on federal Schedule C as a sole proprietor as well as sales your customers reported to the IRS on Forms 1099. The department compared the IRS information to the sales you reported for gross receipts tax. If the amount reported to department is less than the information they got from the IRS, the department sees an apparent underpayment of GRT and opened the audit.

Common circumstances that cause the mismatch

The business did not register with the Taxation & Revenue Dept.

The business registered but did not file gross receipts tax reports.

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.

The business in located outside of New Mexico and has customers in New Mexico.

The business is operated by individuals who moved to New Mexico and are not familiar with the gross receipts tax.

The business did not report sales that are not subject to gross receipts tax.

If you don't respond to the letter

The audit letter gives you 60 days in which to provide the department proof that some of your gross receipts are not subject to gross receipts tax. If you don't respond, the department will make the tax a legal debt (called an assessment).

Along with the audit letter there will be an offer for you to participate in a Managed Audit and avoid penalties and interest.