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Business And Tax Climate: Focus on New Mexico



Business And Tax Climate: Focus on New Mexico

New Mexico, nicknamed as “The Land of Enchantment,” is located in the Southwest part of the United States. The state was admitted to the union as the 47th state on January 6, 1912. It is one of the mountain states and shares the Four corners region with Utah, Colorado, and Arizona.

The dramatic climate, a sharp diversity of people, and famous landscapes are some of the things that make New Mexico a unique state. The state’s climate is generally semiarid to arid, though portions of the state have a continental and alpine climate, and its terrain is mostly covered by mountains, high plains and desert. The state is home to prospering art communities, colleges, and historic sites that inspired many influential early artists.

Business Climate

Mining, gas, and oil extraction are the largest contributors to the growth of real GDP in New Mexico. The state is home to vast deposits of energy resources including fossil fuels, minerals, crude oil, natural gas, and other substantial oils which makes it one of the top 10 energy producers in the nation. The state also surpassed California and Oklahoma to become the third-largest oil producer in the country.

New Mexico is the third leading crude oil and natural gas producer in the United States. The Permian basin (part of the Mid-Continent Oil Field, a very large oil and natural gas region) and San Juan Basin lie partly in New Mexico, which is a large oil and natural gas producing area.

Many of the federal jobs relate to the military; the state hosts three air force bases (Kirtland Air Force Base, Holloman Air Force Base, and Cannon Air Force Base), a testing range (White Sands Missile Range), and an army proving ground and maneuver range (Fort Bliss- McGregor Range). Other federal installations include the technology labs of Los Alamos National Laboratory, developer of the first atomic bomb, and Sandia National Laboratories.

Tax Climate

The top individual income tax rate is 4.9% and the top corporate income tax rate is 5.9 %.

Apportionment: New Mexico adopts an equally weighted three-factor apportionment formula, but qualifying manufacturers and taxpayers whose principal business activity is a headquarters operation or operating a computer processing facility may elect to apportion business to New Mexico using a single-sales factor apportionment formula.

In New Mexico, receipts from services are sourced based on the location of the taxpayer’s market for the service.

Sales Tax Structure

The state sales tax rate is 5.125% which ranks 32nd in the country.

New Mexico imposes the gross receipts tax on persons for the privilege of “engaging in business” in New Mexico which means carrying on any activity with a purpose of direct or indirect benefit that rises to a level of physical presence in the state. Effective July 1, 2019, persons lacking physical presence in New Mexico are subject to the gross receipts tax if they have at least $100,000 of taxable gross receipts from in-state sales in the previous calendar year.

The legislation also includes a marketplace facilitator law enacted on July 1, 2019, where marketplace providers with at least $100,000 in total gross sales are responsible for collecting the gross receipts tax on behalf of marketplace sellers for taxable sales that are facilitated and sourced to New Mexico.

New Mexico is aggressive in its approach to the taxation of technology products for sales tax purposes. Services, including SaaS, are subject to New Mexico’s gross receipts tax, as long as the services are used in New Mexico. For this reason, the taxability of cloud computing services in New Mexico does not depend on the location of servers from which these services are accessed. For instance, charges to use information or data located on a remote server are subject to tax if the information or data is received in New Mexico.

Generally, digital products that are transferred electronically are subject to sales and use tax. Prewritten computer software that is electronically downloaded is taxable. Custom computer software that is electronically downloaded is also taxable. How products are produced, sold and delivered is critical to determining their tax status.

Many states have annual sales tax holidays, during which certain items the state wants to promote the purchase of (like school supplies, emergency preparedness supplies, or energy efficient appliances) can be purchased sales tax free. New Mexico had a sales tax holiday in early August which comprised of computers, clothing, footwear and school supplies. Personal property items, when purchased from a small business are part of another sales tax holiday coming up on November 28.

Random Facts

  • The world’s largest international hot air balloon festival is held annually in Albuquerque, NM.
  • New Mexico’s capital, Santa Fe, is the highest capital city in the United States at 7,000 feet above sea level.
  • The leaves of the Yucca, New Mexico’s state flower, can be used to make rope, baskets and sandals.
  • White Sands National Monument is a desert, not of sand, but of gleaming white gypsum crystals.
  • Northeast New Mexico has more than 1,000 buildings listed on the National Historic Register.
  • More than 500, 100-million-year-old dinosaur footprints have been identified and preserved at Clayton Lake State Park.
  • New Mexico has seven National Forests including the nation’s largest, 3.3 million-acre Gila National Forest, which includes the Gila Wilderness.  Though many people picture New Mexico as desert terrain, ¼ of the state is actually filled with forests.
  • The Navajo are the United States largest Native American Group, with 78,000 members in New Mexico, and a reservation that covers 14 million Acres.

Have a question? Contact Monika Miles And Team.

Monika Miles

Monika founded Miles Consulting Group which focuses on multi-state tax consulting, helping clients navigate state tax issues such as sales tax and income tax in interstate commerce, including e-commerce.

Prior to forming the firm, Monika worked for 12 years combined in Big 4 Public Accounting and private industry. Monika has provided such services as federal and state income/franchise tax compliance and consulting, sales/use tax consulting, audit support, and credits and incentives reviews. She has served clients in a variety of industries including manufacturing, technology, telecommunications, construction, utility, retail and financial institutions.

Monika graduated from the University of Texas at El Paso (UTEP) with a BBA in Accounting/Finance and has a Masters in Taxation from San Jose State University.

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