When I first moved to New Mexico last year and began the legwork of setting up my own business as an independent web developer and designer, I quickly became aware of something unique to New Mexico (and a few other states) — gross receipts tax. At first it was a black box. I did some googling and was unable to find the answer to my main question: did I need to charge out-of-state clients New Mexico’s gross receipts tax? It took awhile to finally get the answer.
New Mexico does not have a state sales tax in place. Instead, it levies a gross receipts tax (GRT) on many business transactions. Unlike most state’s sales tax laws, this tax applies to services as well, making it pretty unique and often confusing for new residents looking to set up businesses in the state.
Here’s the point in this post where I mention that I’m not a tax professional and that you should definitely seek advice from a CPA or other certified tax preparer to make sure you’re setting up your business for success as far as gross receipts are concerned.
Gross Receipts is a tax that businesses (including freelancers) normally charge the client. It is a percentage tax that differs slightly in different counties within New Mexico. As of this post, the current GRT rate is 7% within Albuquerque, New Mexico. As detailed on the New Mexico Taxation & Revenue website,
If you are engaged in business in New Mexico, you must file a New Mexico tax return and pay gross receipts tax for the privilege of doing business in New Mexico.
As a freelancer or consultant, normally you would add gross receipts tax as a line item at the very bottom of your invoices, based on the invoice total. Gross receipts are then remitted to the state of New Mexico on a regular basis (typically monthly or quarterly, depending on the business’s revenue and filing preferences).
For those new to gross receipts, I highly recommend attending one of the free New Business Workshops that are frequently held by NM Taxation & Revenue. I attended this workshop last year and although it required losing a full day of work, I got all of my questions on New Mexico’s gross receipts answered and felt a heck of a lot better afterwards. The workshop goes into full detail on both gross receipts and federal taxes, and they cover how to file your gross receipts reports, with detailed examples. The volunteer CPA who presented was very knowledgeable as well, covering a lot of best practices for small businesses, from record keeping to filing quarterly federal tax payments, etc.
Filing Gross Receipts Taxes
Gross receipts taxes are filed using a CRS-1 form. Thankfully, it’s pretty easy to get set up to file them online rather than having to deal with the hassle of paper and the postage. The online system, TAP, works pretty well.
One important note is that the CRS-1 forms must be filed at your designated filing interval even if no income has been earned (which means that no gross receipts are due). This is called filing a “zero” report.
For freelance consultants, web developers, designers, and professionals in similar roles performing services for clients outside of New Mexico, it’s important to note that gross receipts do not typically apply. For example, if a freelance web developer builds a client in California a website, that client does not need to pay New Mexico gross receipts tax. Note that there are some exceptions to this (which is why the New Business Workshop mentioned above is so valuable!). One of these is R&D services performed outside New Mexico. If the end product is initially used in New Mexico, gross receipts tax does apply. Yes folks, this is confusing stuff :).
One recommendation I received at the New Business Workshop was to still include all out-of-state services rendered in my gross receipts tax filings and then to deduct those amounts from the grand total, meaning that no tax is actually paid on them. The benefit of this approach for sole proprietors is that state income tax numbers remitted from New Mexico to the IRS will then match up with federal income tax records, which should help reduce the likelihood of an IRS audit.
Again, be sure to seek advice from a tax professional to take the right steps for your own situation.
Other than the New Business Workshop, the NM Taxation & Revenue website is a good resource for learning about the basics of the gross receipts tax. For those living in Albuquerque, New Nexico specifically, a good resource for learning about the steps for setting up a new business in Albuquerque is the city of Albuquerque’s “How to Start a Business” web page. For any specific questions on filing gross receipts, I was told at the New Business Workshop that business owners can call NM Taxation & Revenue at 505-841-6200 during business hours and ask for the tax auditor oncall.
I hope that this helps someone new to New Mexico trying to set up shop as an independent consultant or freelancer and wondering how to figure out the world of New Mexico’s gross receipts tax.