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New Mexico—Tax Focus And Business Climate

Monika Miles

Welcome to the Land of Enchantment! This month we travel to the southwestern state of New Mexico. The states of New Mexico, Colorado, Arizona and Utah come together at the Four Corners in the northwestern corner of the state, the only such occurrence in the U.S. Although a large state, New Mexico has very little water, with a surface area of only about 250 square miles.

Inhabited by Native Americans for thousands of years before European Exploration, New Mexico was colonized in 1598 by the Imperial Spanish viceroyalty of New Spain. Later, it was part of independent Mexico before becoming a U.S. territory and eventually a U.S. state, as a result of the Mexican-American War. Among the U.S. states, New Mexico has the highest percentage of Hispanics, including descendants of the original Spanish colonists who have lived in the area for more than 400 years beginning in 1598. The demography and culture are shaped by these strong Hispanic and Native American Influences and is also expressed in the state flag. Its scarlet and gold colors are taken from the royal standards of Spain, along with the ancient symbol of the Zia, a Pueblo-related tribe.

The landscape of the state ranges from wide, rose-colored deserts to broken mesas to high, snow-capped peaks. Despite New Mexico’s arid image, heavily forested mountain wildernesses cover a substantial portion of the state especially toward the north.

Visitors frequent the surviving native pueblos of New Mexico. Other areas of geographical and scenic interest include Kasha-Katuwe Tent Rocks National Monument and the Gila Wilderness in the southwest part of the state. The Sangre de Cristo Mountains, the southernmost part of the Rocky Mountains, run roughly north-south along the east side of the Rio Grande in the rugged north. The most important of New Mexico’s rivers are the Rio Grande, Pecos, Canadian, San Juan and Gila.

Business Climate

Oil and gas production, tourism and federal government spending are important drivers of the state’s economy.

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.

Federal government spending is a major driver of the New Mexico economy. In 2005, the federal government spent $2.03 on New Mexico for every dollar of tax revenue collected from the state. This rate of return is the highest of any state in the nation.

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 a very low 4.9%. Another notable tax to consumers and the general public is the gasoline tax. This is an excise tax imposed on distributors of gasoline for the privilege of receiving gasoline in New Mexico. The gasoline tax rate is $0.17 per gallon.

New Mexico imposes a Gross Receipts Tax (GRT) on many transactions, which may include some governmental receipts. This resembles a sales tax but, unlike the sales tax in many states, it applies to services as well as tangible goods. Normally, the provider or seller passes the tax on to the purchaser. However, legal incidence and burden apply to the business, as an excise tax. GRT is imposed by the state and there may be an additional locality component to produce a local tax rate. As of July 1, 2013 the combined tax rate ranged from 5.125% to 8.6875%.

Property tax is imposed on real property by the state, by counties, and by school districts. In general, personal property is only taxed if used for business purposes. The taxable value of property is 1/3 of the assessed value. A tax rate of about 30 mills is applied to the taxable value, resulting in an effective tax rate of about 1%. Assessed values of residences cannot be increased by more than 3% per year unless the residence is remodeled or sold. This caveat of the property tax in New Mexico is similar to that of Proposition 13 of California. Property tax deductions are available for military veterans and head of households.

With the production of oil and natural gas, New Mexico is attractive for technology companies to do business and sell their products to people in the state. Prewritten software that is downloaded electronically is taxable. Custom software that is downloaded electronically is taxable. Software-as-a-Service is taxable. Lastly, digital products, of all kinds, are also taxed in the state. In conclusion, New Mexico is aggressive when it comes to taxing products.

Tax Incentives and Credits

Businesses in New Mexico may be able to take advantage of several tax credits. Some of these include:

Business Facility Rehabilitation- This credit for qualified business facility rehabilitation is 50% of the costs of a project for the restoration, rehabilitation of qualified business facilities. Claims are limited to three consecutive years and may not exceed $50,000. Any portion of the credit that remains unused at the end of the taxpayer’s reporting period may be carried forward for four consecutive years. For more information on this credit, click here.

Advanced Energy- This credit is for businesses who hold an interest in a qualified power-generating facility. For more information on this credit, click here.

Affordable Housing- This credit is for businesses that invest in affordable housing projects for residences approved by the New Mexico Mortgage Finance Authority and located in a county fewer than 100,000 persons. For more information on this credit, click here.

Intergovernmental Business- This tax credit permits oil and gas companies to claim a credit against state taxes on oil or natural gas produced from a well on Indian tribal land, the actual drilling of which commenced on or after July 1, 1995. For more information on this credit, click here.

Our team at Miles Consulting Group is always available to discuss the specifics of your situation, whether in New Mexico or other U.S. States, and help you navigate the complex tax structures arising from multistate operations. Call us to help you achieve the best tax efficiencies.

Random Facts

  • New Mexico is the fifth largest by area, the 36th most populous, and the sixth-least densely populated of the fifty states.
  • The black bear, native to New Mexico, was formally adopted as the state’s official animal in 1953.
  • Albuquerque hosts the famed annual Albuquerque International Balloon Fiesta every Fall. It is the largest hot air balloon festival in the world.
  • Olympic Gold Medalist Tom Jager, who is an advocate of controversial high-altitude training for swimming, has conducted training camps in Albuquerque and Los Alamos.
  • The Rio Grande is tied for the fourth-longest river in the United States.
  • The White Sands National Monument, located in the southern part of the state, is comprised of large fields of white sand dunes made up of gypsum crystals. This gypsum dune field is the largest of its kind in the world.
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.