New Mexico has a gross receipts tax rather than a sales tax. Unlike a sales tax, a gross receipts tax is levied on all business sales transactions--including business-to-business purchases of raw materials, supplies and equipment. Like a sales tax, the gross receipts tax is typically passed on to customers. New Mexico gross receipts tax may be separately stated or included in the selling price.
According to the Tax Foundation, an independent, non-partisan tax research group based in Washington, D.C., "gross receipts taxes create an extra layer of taxation at each state of production that sales and other taxes do not--something economists call 'tax pyramiding.'"
The rate of gross receipts tax varies throughout the state. At its lowest, it is 5.125%: the basic state rate and the rate paid by collecting out-of-state businesses. At its highest, it is 8.6875%: a rate currently found only in the Taos Ski Valley.
New Mexico's gross receipts tax has been in place since "the depth of the great depression," in 1935. Yet Economic Development Cabinet Secretary Jon Barela would like "to see the state make a wholesale shift from a gross receipts tax to a pure sales tax." The system worked well after the second world war, he said, but it works less well today, an age of "portability of work…."
Will New Mexico switch to a sales tax? Probably not any time soon; these things take time. But given that it's a topic of discussion, it's worth considering what such a change would mean for your business.
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