Should you collect sales tax in New Mexico?
Sales tax (commonly referred to as “Gross receipt tax” in New Mexico) is levied on the sale of goods and services to your customers. However, you will collect the sales tax if you determine the nexus in New Mexico. A nexus is a presence that may come physically or economically.
Physical nexus is typically created when your business has a store, warehouse, or office location in New Mexico. An economic nexus is intertwined when you cross paths with threshold limits as already stipulated by the state. These thresholds are based on revenue.
Let’s explore if your business has a Physical nexus in New Mexico.
A physical nexus is integrated when your business is engaged in the following in New Mexico:
- Selling goods or services in New Mexico.
- Maintaining, occupying or using a place of business or an office in New Mexico.
- Having a stock of goods in New Mexico.
- Employing or retaining any contractor, including an agent, representative, or salesman, by whatever name called, engaged in activities relating to selling, delivering, installing, or taking business orders.
This is just an illustrative list. Here is what Taxation and Revenue New Mexico say about physical nexus.
Is it constituting an Economic nexus in New Mexico?
You are required to comply and register under sales tax rules if you have business sales in New Mexico that exceed $100,000 during the current or previous calendar year.
How can you Register for Sales tax in New Mexico?
You need to apply online using the New Mexico Internet filing system to get a sales tax permit in New Mexico. Otherwise, you can also submit the paper licensing application by sending it to their mailing address.
Additionally, before applying for a new tax account number, make sure you have the following information handy:
- FEIN and Social Security numbers of all officers, partners or owners.
- Address details (physical and mailing).
- Business incorporation dates in New Mexico.
- Contact information.
- Nature of business.
Is your product or services liable to Sales tax in New Mexico?
Tangible Property: Sales or Gross receipt tax in New Mexico is imposed on the retail sale of tangible personal property, such as Furniture, giftware, toys, etc.
Services: Services are generally subject to sales tax in New Mexico unless exempted.
Digital Product: New Mexico charges sales tax on digital products. So, if you sell digital products such as software, streaming services, e-books, etc., you need to collect sales tax.
SAAS: SAAS is software that allows users to connect to the cloud and use it over an internet connection. It is taxable in New Mexico.
The state provides certain exemptions from the sales tax levy, such as food for home consumption, prescription drugs, occasional sales, and interstate telecommunications. Please click here to see what exemptions are covered (pg.9).
You can also visit the New Mexico Department of Revenue website for more concise information about taxability in New Mexico. This guide also covers the taxability of digital products and software.
How should you collect and calculate state taxes in New Mexico?
Collecting and computing accurate sales tax to be remitted to the state may involve stratospheric efforts, especially when you are not in New Mexico, as the sales tax is destination-based in New Mexico, which means you must collect taxes on tangible property sold to buyers based in New Mexico.
Complexities involved where you have a business nexus even if not in the state. Any default may lead to severe concerns, penalties, or fines by the state. That is what TaxDo is here for you! Our specialized sales tax calculator and professional services will simplify your job and lighten your compliance burden.
New Mexico has a base sales tax rate of 5.125%, followed by the local tax rates, which can be up to 4.25% based on the cities and municipalities. Click here for the city-wise sales tax rates (including local rates).
Below is the simple formula you can use to calculate your sales tax collection on each merchandise sold:
Sales Tax collectable = Sale value * (5.125% plus local tax rate)
Do you need to collect sales tax on Shipping Charges?
If non-taxable items are sold, shipping charges associated with such sale are not liable to sales tax. However, the sale includes both taxable and non-taxable items, shipping charges need to be apportioned relatively between taxable and non-taxable parts of the sale, and accordingly, sales tax is applicable on the taxable portion of the sale. Refer to more detailed guidance on delivery charges.
How should you file sales tax in New Mexico?
E-file: E-file your return through the Taxation and Revenue Department website.
Payments and returns are also to be remitted. The state accepts payments through checks, EFT, credit cards, etc.
Even if your sales tax liability is zero, you must file the return to avoid penalty or interest.
Filing frequencies and due dates
Based on your reported sales tax or estimated taxable sales, the New Mexico Department of Revenue assigns you a filing frequency, which can be Monthly, Quarterly, or Yearly. According to your filing frequency, the due date for filing sales tax would be the 25th Day of the month following the relevant reporting period.
Note: If the due date is a holiday or weekend, the next business day would be considered the final due date. Use this link on the official website of New Mexico to learn more about due dates and filing frequencies.
Are there any fines or penalties for default in filing or paying sales tax?
The state levies a penalty of 2% of sales tax per month, subject to a minimum of 20%. Interest is payable at the rate of 15% on unpaid tax. However, the total penalty and interest can’t exceed 20% of the tax due.
However, assigning your tax burden to TaxDo would not result in you paying any penalty or interest. We will adhere to the due dates. Go through the comprehensive guide to penalties and interest issues by the New Mexico Department of Revenue.
Sales tax holiday in New Mexico
The New Mexico sales tax holiday applies to back-to-school items. Different thresholds are set across the category of goods for claiming the sales tax holiday. For detailed information, refer to the New Mexico Revenue Department advisory here.