Updated Guidance on Gross Receipts Tax Rules

July 7, 2021

Earlier today, the Taxation and Revenue Department updated a key publication providing guidance on Gross Receipts Taxes (“GRT”) with new information on destination sourcing rules that took effect on July 1. Department publication FYI-200 explains the new rules and provides some examples to help taxpayers understand how they might apply to their circumstances. The publication can be found in the publications folder of the Forms & Publications page at tax.newmexico.gov.

The Department issued regulations on the new sourcing method this spring. Those regulations are now available on the New Mexico Register.

Under the new rules, most New Mexico-based businesses pay the GRT rate in effect where their goods or the products of their services are delivered. This so-called destination sourcing method was mandated by legislation adopted in 2019 and 2020. It is a significant change from the prior statutory scheme which required origin-based sourcing for most businesses. The 2019 legislation also allowed the state to begin taxing internet-based sales by out-of-state businesses.

New Mexico retailers whose sales are wholly or primarily at their place of business will see little or no effect. However, if some of their sales are completed through deliveries, they will need to pay the rate in effect where the purchaser has them deliver the merchandise.

The rules for service providers are more complex because they depend on the type of service provided. The listing below summarizes the impacts of the July 1 changes in the law based on the type of receipts involved.

  • General Services, In-Person Professional Services, and Tangible Personal Property (Goods) – Changes from Origin to Destination Based
  • Professional Services that require an advanced degree or a license from the state to perform (when not in-person) – No Change – Remains Origin Based
  • Construction Services and Real Estate Commissions – No Change – Remains Destination Based

For services subject to destination sourcing, the rate is determined by the location where the product of the service is delivered. This means receipts from services are no longer reported to the sellers’ business location.  That often, but not always, will be the same location as where the service is performed.

An interactive map on the Department website allows taxpayers to search for addresses and match them to location codes and tax rates. A link to the map is available on the homepage of tax.newmexico.gov.

Compensating Tax Changes

Effective July 1, 2021, local option compensation tax is now imposed at the same rate as local option gross receipts tax. This means there will no longer be a difference in rates between the two taxes. In addition, compensating tax is now imposed on the privilege of using services in New Mexico. This is a significant expansion of the compensating tax in New Mexico.

Two of the presentations made by Department leadership on the subject are available on the Department’s YouTube channel, New Mexico Taxation and Revenue. The Department has announced it expects to release more content on the channel soon.

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