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New Mexico Legislature still pushing to tax internet sales

  • May 25, 2017 | Gail Cole

 The New Mexico Legislature is still working to tax remote sales.

Update, 8.8.2017: HB 2 was enacted. However the provision to tax sales by marketplace providers was struck from the final version.

The New Mexico Legislature and Gov. Susana Martinez are clashing over how to balance the budget. Earlier this spring, the governor signed a budget bill but cut close to $775 million from the plan with line-item vetoes. A measure that would have allowed the state to tax sales by certain out-of-state businesses was among those axed, but the proposal is back on the table during the current special session.

Like its vetoed predecessor (HB 202), House Bill 2 provides that the place of business of a person without a physical presence in New Mexico is “where the property or service being sold is delivered.” It would require remote vendors that make deliveries into New Mexico to collect and remit tax on those sales.

“Third-party sales made over a multi-vendor marketplace platform that acts as the intermediary… between the seller and the purchaser” would also be subject to gross receipts tax under the measure.

However, remote vendors with less than $100,000 in New Mexico gross receipts during the prior calendar year would be excluded from this requirement.

Federal vs. state solution to remote sales tax problem

Lawmakers in New Mexico have long been interested in taxing sales by remote sellers to consumers in the state. However, under a precedent upheld by the Supreme Court decision in Quill Corp. v. North Dakota 504 U.S. 298 (1992), a state can only impose a tax obligation on a business that has a substantial connection to the state (nexus) — historically defined as a physical presence. Many states have broadened their definition of nexus to include connections to in-state affiliates or even economic activity in the state. But until this year, the New Mexico Legislature has held off from attempting to do so.

State officials were hoping a solution would come from Congress, which has the authority to grant states the right to tax interstate sales. It looked like Congress might act in 2013 when the Senate passed the Marketplace Fairness Act (MFA), but the bill never made it to the floor of the House. Since then, Congress has had numerous opportunities to move forward on one of several measures, to no avail: updated versions of the MFA, the Remote Transactions Parity Act (RTPA), or the Online Sales Simplification Act. That could change this year, since 2017 versions of both the MFA and RTPA were introduced last month, but there is still strong opposition in Congress to allowing states to tax remote sellers.

So, as has happened in many states, the New Mexico Legislature is working to come up with a solution of its own. It’s unclear what Gov. Martinez will do if the bill ends up on her desk; she has generally opposed new taxes and tax increases throughout her tenure. A tax on remote vendor sales would not be a new tax, because taxable sales from remote vendors are not actually exempt — consumers are supposed to remit use tax to the state if tax wasn’t collected by the vendor at checkout. Nonetheless, consumers could experience it as a new tax if their favorite ecommerce sellers suddenly start taxing their sales.

Internet retail giant Amazon began collecting tax on its New Mexico sales on April 1, 2017, and now collects tax in all sales tax states. New Mexico Taxation and Revenue Department spokesman Ben Cloutier said he expects Amazon will add tens of millions to the state coffers annually. Yet many remote sales still go untaxed in New Mexico. HB 2 is the latest attempt to capture tax revenue from a portion of those transactions.

Companies that make sales in multiple states should keep a close watch on measures such as the one under consideration in New Mexico and have a plan in place should they be required to collect and remit tax in additional jurisdictions. Tax automation software facilitates sales and use tax compliance in all states. Learn more.

Sales tax rates, rules, and regulations change frequently. Although we hope you'll find this information helpful, this blog is for informational purposes only and does not provide legal or tax advice.
Gail Cole
Avalara Author
Gail Cole
Gail Cole
Avalara Author Gail Cole
Gail began researching and writing about sales tax in 2012 and has been fascinated with it ever since. She has a penchant for uncovering unusual tax facts, and endeavors to make complex sales tax laws more digestible for both experts and laypeople.