Learn about sales tax automation
Introducing our Sales Tax Automation 101 series. The first installment covers the basics of sales tax automation: what it is and how it can help your business.
Sales tax 101
Sales tax is a tax paid to a governing body (state or local) on the sale of certain goods and services. New Mexico first adopted a version called a gross receipts tax in 1933, and since that time, the rate has risen to 5.125 percent. On top of the state gross receipts tax, there may be one or more local taxes, as well as one or more special district taxes, each of which can range between 0 percent and 3.9375 percent. Currently, combined gross receipts tax rates in New Mexico range from 5.125 percent to 9.0625 percent, depending on the location of the sale.
As a business owner selling taxable goods or services, you act as an agent of the state of New Mexico by collecting tax from purchasers and passing it along to the appropriate tax authority. Gross receipts tax in New Mexico is administered by the New Mexico Taxation & Revenue Department (TRD).
Any gross receipts tax collected from customers belongs to the state of New Mexico, not you. It’s your responsibility to manage the taxes you collect to remain in compliance with state and local laws. Failure to do so can lead to penalties and interest charges.
When you need to collect New Mexico gross receipts tax
In New Mexico, a gross receipts tax is levied on the sale of tangible goods and some services. The tax is collected by the seller and remitted to state tax authorities. The seller acts as a de facto collector.
To help you determine whether you need to collect gross receipts tax in New Mexico, start by answering these three questions:
- Do you have nexus in New Mexico?
- Are you selling taxable goods or services to New Mexico residents?
- Are your buyers required to pay gross receipts tax?
If the answer to all three questions is yes, you’re required to register with the state tax authority, collect the correct amount of gross receipts tax per sale, file returns, and remit to the state.
Failure to collect New Mexico gross receipts tax
If you meet the criteria for collecting gross receipts tax and choose not to, you’ll be held responsible for the tax due, plus applicable penalties and interest.
It’s extremely important to set up tax collection at the point of sale — it’s near impossible to collect gross receipts tax from customers after a transaction is complete.
Sales tax nexus
The need to collect gross receipts tax in New Mexico is predicated on having a significant connection with the state. This is a concept known as nexus. Nexus is a Latin word that means "to bind or tie," and it’s the deciding factor for whether a state has the legal authority to require your business to collect, file, and remit sales tax.
Sales tax nexus in all states used to be limited to physical presence: A state could require a business to register and collect and remit sales tax only if it had a physical presence in the state, such as employees or an office, retail store, or warehouse.
In June 2018, the Supreme Court of the United States overruled the physical presence rule with its decision in South Dakota v. Wayfair, Inc. States are now free to tax businesses based on their economic and virtual connections to the state, or economic nexus.
While physical presence still triggers a gross receipts tax collection obligation in New Mexico, it’s now possible for out-of-state sellers to have nexus with New Mexico.
Out-of-state sellers with no physical presence in a state may establish gross receipts tax nexus in the following ways:
Click-through nexus: Having an agreement to reward a person(s) in the state for directly or indirectly referring potential purchasers of goods through an internet link, website, or otherwise. At this time, New Mexico has not enacted a click-through nexus law.
Economic nexus: Having a certain amount of economic activity in the state. For sales made on and after July 1, 2019, a remote seller must register with the state then collect and remit New Mexico gross receipts tax if gross revenue from the sale of taxable tangible personal property or taxable services in the state total at least $100,000 during the current or previous year.
Inventory in the state: Storing property for sale in the state. This includes merchandise owned by Fulfillment by Amazon (FBA) merchants and stored in New Mexico in a warehouse owned or operated by Amazon.
Marketplace sales: Making sales through a marketplace. Effective July 1, 2019, marketplace facilitators with at least $100,000 in gross revenue from sales made or facilitated in New Mexico are responsible for collecting and remitting gross receipts tax to the New Mexico TRD.
Trade shows: Attending conventions or trade shows in New Mexico. You may be liable for collecting and remitting New Mexico tax on orders taken or sales made during New Mexico conventions or trade shows.
If you have gross receipts tax nexus in New Mexico, you’re required to register with the New Mexico TRD and to charge, collect, and remit the appropriate tax to the state.
For more information, see changes to New Mexico tax law, HB6, New Mexico TRD Determining Nexus, and State-by-state registration requirements for marketplace sellers.
Sales tax nexus can linger even after a retailer ceases the activities that caused it to be “engaged in business” in the state. This is known as trailing nexus. As of October 2019, New Mexico does not have an explicitly defined trailing nexus policy.
Fulfillment by Amazon (FBA)
If you’re an active Amazon seller and you use Fulfillment by Amazon (FBA), you need to know where your inventory is stored and if its presence in a state will trigger nexus. FBA sellers can also download an Inventory Event Detail Report from Amazon Seller Central to identify inventory stored in New Mexico.
If you sell taxable goods to New Mexico residents and have inventory stored in the state, you likely have nexus and an obligation to collect and remit tax. To begin to understand your unique nexus obligations, check out our free economic nexus tool or consult with a trusted tax advisor.
Sourcing gross receipts tax in New Mexico: which rate to collect
In some states, sales tax rates, rules, and regulations are based on the location of the seller and the origin of the sale (origin-based sourcing). In others, sales tax is based on the location of the buyer and the destination of the sale (destination-based sourcing).
New Mexico is an origin-based state. This means you’re responsible for applying the tax rate determined by the ship-from address on all taxable sales.
After determining you have gross receipts tax nexus in New Mexico, you need to register with the proper state authority and collect, file, and remit gross receipts tax to the state. We get a lot of questions about this and recognize it may be the most difficult hurdle for businesses to overcome. Avalara Licensing can help you obtain your New Mexico business license and tax registration.
How to register for a New Mexico seller's permit
You can register for a New Mexico seller’s permit online through the New Mexico TRD. To apply, you’ll need to provide the New Mexico TRD with certain information about your business, including but not limited to:
- Business name, address, and contact information
- Federal EIN number
- Date business activities began or will begin
- Projected monthly sales
- Projected monthly taxable sales
- Products to be sold
Cost of registering for a New Mexico seller's permit
There’s currently no cost to register for a New Mexico Tax Combined Reporting System (CRS) Identification Number.
Acquiring a registered business
You must register with the New Mexico Taxation & Revenue Department if you acquire an existing business in New Mexico. The state requires all registered businesses to have the current business owner’s name and contact information on file.
Streamlined Sales Tax (SST)
The Streamlined Sales Tax Agreement (SSUTA), or Streamlined Sales Tax (SST), is an effort by multiple states to simplify the administration and cost sales tax for remote sellers. Remote sellers can register in multiple states at the same time through the Streamlined Sales Tax Registration System (SSTRS).
As of October 2019, New Mexico is not an SST member state.
Collecting gross receipts tax
Once you've successfully registered to collect New Mexico gross receipts tax, you'll need to apply the correct rate to all taxable sales, remit gross receipts tax, file timely returns with the New Mexico Taxation & Revenue Department, and keep excellent records. Here’s what you need to know to keep everything organized and in check.
How you collect New Mexico gross receipts tax is influenced by how you sell your goods:
Brick-and-mortar store: Have a physical store? Brick-and-mortar point-of-sale solutions allow users to set the gross receipts tax rate associated with the store location. New tax groups can then be created to allow for specific product tax rules.
Hosted store: Hosted store solutions like Shopify and Squarespace offer integrated tax rate determination and collection. Hosted stores offer sellers a dashboard environment where New Mexico gross receipts tax collection can be managed.
Marketplace: Marketplaces like Amazon and Etsy offer integrated tax rate determination and collection, usually for a fee. As with hosted stores, you can set things up from your seller dashboard and let your marketplace provider do most of the heavy lifting.
Mobile point of sale: Mobile point-of-sale systems like Square rely on GPS to determine sale location. The appropriate tax rate is then determined and applied to the order. Specific tax rules can be set within the system to allow for specific product tax rules.
New Mexico gross receipts tax collection can be automated to make your life much easier. Avalara AvaTax seamlessly integrates with the business systems you already use to deliver gross receipts tax calculations in real time.
Some sales are deductible or exempt from gross receipts tax under New Mexico law. Examples include durable medical equipment, some medical services, and purchases made with food stamps.
We recommend businesses review the laws and rules put forth by the New Mexico Taxation & Revenue Department to stay up to date on which goods are taxable and which are deductible or exempt, and under what conditions.
Some customers are exempt from paying gross receipts tax under New Mexico law. Examples include government agencies, some nonprofit organizations, and merchants purchasing goods for resale.
Sellers are required to collect a valid exemption or resale certificate from buyers to validate each exempt transaction.
Misplacing a tax exemption/resale certificate
New Mexico gross receipts tax exemption and resale certificates are worth far more than the paper they’re written on. If you’re audited and cannot validate an exempt transaction, the New Mexico Taxation & Revenue Department may hold you responsible for the uncollected gross receipts tax. In some cases, late fees and interest will be applied and can result in large, unexpected bills.
Gross receipts tax holidays
Gross receipts tax holidays exempt specific products from gross receipts tax for a limited period, usually a weekend or a week. Approximately 17 states offer tax holidays every year.
As of October 2019, New Mexico has the following tax holidays scheduled:
- Back to school, August 7–9, 2020
- Bookbags, backpacks, maps, and globes priced under $100
- Clothing, footwear, and accessories priced less than $100
- Computers priced up to $1,000 (includes e-readers with computing functions and tablets)
- Computer-related items priced up to $500
- Handheld calculators priced under $200
- School supplies priced under $30
Retailers are not required to participate in the back-to-school tax holiday. Retailers are permitted to absorb the tax on non-qualifying items.
- Small business sales tax holiday, Saturday, November 28, 2020
- Retailers that maintain their primary place of business in New Mexico and employ no more than 10 employees at any one time do not have to charge customers gross receipts tax on qualifying items with a sales price of less than $500
Filing and remittance
You're registered with the New Mexico Taxation & Revenue Department and you've begun collecting gross receipts tax. Remember, those tax dollars don't belong to you. As an agent of the state of New Mexico, your role is that of intermediary to transfer tax dollars from consumers to the tax authorities.
How to file
Once you’ve collected gross receipts tax, you’re required to remit it to the New Mexico Taxation & Revenue Department by a certain date. The New Mexico Taxation & Revenue Department will then distribute it appropriately.
Filing a New Mexico gross receipts tax return is a two-step process comprised of submitting the required sales data (filing a return) and remitting the collected tax dollars (if any) to the New Mexico TRD. The filing process forces you to detail your total sales in the state, the amount of gross receipts tax collected, and the location of each sale.
Online filing is generally required, but paper returns are acceptable in limited circumstances.
The New Mexico Taxation & Revenue Department will assign you a filing frequency. Typically, this is determined by the size or sales volume of your business. State governments generally ask larger businesses to file more frequently. See the filing due dates section for more information.
New Mexico gross receipts tax returns and payments must be remitted at the same time; both have the same due date.
You may file directly with the New Mexico TRD by visiting their site and entering your transaction data manually. This is a free service, but preparing New Mexico gross receipts tax returns can be time-consuming — especially for larger sellers.
Using a third party to file returns
To save time and avoid costly errors, many businesses outsource their sales and use tax filing to an accountant, bookkeeper, or sales tax automation company like Avalara. This is a normal business practice that can save business owners time and help them steer clear of costly mistakes due to inexperience and a lack of deep knowledge about Missouri sales tax code.
Avalara Returns for Small Business is an affordable third-party solution that helps business owners simplify the sales tax returns process and stay focused on growing their business. Learn how automating the sales tax returns process could help your business. See our offer to try Returns for Small Business free for up to 60 days. Terms and conditions apply.
Filing when there are no sales
Once you have a New Mexico seller's permit, you’re required to file returns at the completion of each assigned collection period regardless of whether any gross receipts tax was collected. When no gross receipts tax was collected, you must file a "zero return.”
Failure to submit a zero return can result in penalties and interest charges.
Closing a business
The New Mexico TRD requires all businesses to "close their books" by filing a final gross receipts tax return. This also holds true for business owners selling or otherwise transferring ownership of their business.
Timely filing discount
Many states encourage the timely or early filing of gross receipts tax returns with a timely filing discount.
As of October 2019, the New Mexico TRD does not offer gross receipts tax filers a discount.
Filing due dates
It's important to know the due dates associated with the filing frequency assigned to your business by the New Mexico Taxation & Revenue Department. This way you'll be prepared and can plan accordingly. Failure to file by the assigned date can lead to late fines and interest charges.
The New Mexico TRD requires all gross receipts tax filing to be completed by the 25th day of the month following the tax period. Below, we've grouped New Mexico gross receipts tax filing due dates by filing frequency for your convenience. Due dates falling on a weekend or holiday are adjusted to the following business day.
New Mexico 2019 monthly filing due dates
|Reporting period||Filing deadline|
|January||February 25, 2019
|February||March 25, 2019
|March||April 25, 2019
|April||May 28, 2019
|May||June 25, 2019
|June||July 25, 2019
|July||August 26, 2019
|August||September 25, 2019
|September||October 25, 2019
|October||November 25, 2019
|November||December 26, 2019
|December||January 27, 2019
New Mexico 2019 quarterly filing due dates
|Reporting period||Filing deadline|
|Q1 (January 1–March 31)||April 25, 2019
|Q2 (April 1–June 30)||July 25, 2019
|Q3 (July 1–September 30)||October 25, 2019
|Q4 (October 1–December 31)||January 27, 2020
New Mexico 2019 semi-annual filing due dates
|Reporting period||Filing deadline|
|H1 (January 1–June 30)||July 25, 2019|
H2 (July 1–December 31)
January 27, 2020
Filing a New Mexico gross receipts tax return late may result in a late filing penalty as well as interest on any outstanding tax due. For more information, refer to our section on penalties and interest.
In the event a New Mexico gross receipts tax filing deadline was missed due to circumstances beyond your control (e.g., weather, accident), the New Mexico TRD may grant you an extension. However, you may be asked to provide evidence supporting your claim.
Penalties and interest
Hopefully you don't need to worry about this section because you're filing and remitting New Mexico gross receipts tax on time and without incident. However, in the real world, mistakes happen.
If you miss a gross receipts tax filing deadline, follow the saying, “better late than never,” and file your return as soon as possible. Failure to file returns and remit collected tax on time may result in penalties and interest charges, and the longer you wait to file, the greater the penalty and the greater the interest.
If you’re in the process of acquiring a business, it’s strongly recommended that you contact the New Mexico TRD and inquire about the current status of the potential acquisition. Once you've purchased the business, you’ll be held responsible for all outstanding New Mexico gross receipts tax liability.
Shipping and handling
If you’re collecting gross receipts tax from New Mexico residents, you’ll need to consider how to handle taxes on shipping and handling charges.
Taxable and exempt shipping charges
Gross receipts tax applies to delivery and shipping charges (including postage and transportation charges) in New Mexico, whether separately stated or included in the sale price.
There are exceptions to almost every rule with gross receipts tax, and the same is true for shipping and handling charges. Specific questions on shipping in New Mexico and gross receipts tax should be taken directly to a tax professional familiar with New Mexico tax laws.
For additional information, see Gross Receipts Tax General Provisions.