New Mexico Switches to Destination-Based Gross Receipts and Compensating Tax

New Mexico recently changed the reporting location for its gross receipts tax and compensating tax to destination-based sourcing for most goods and certain services. The changes took effect July 1, 2021.

Most goods and certain services subject to New Mexico gross receipts or compensating tax will now be sourced to the location where the product or service is provided. For example, in-person services, including medical services, physical therapy, home health care, and services provided by barbers and cosmetologists, will now be sourced to the location of the service.

Changes to the sourcing of the state’s compensating tax mirror those made to the gross receipts tax. Under the change, if an out-of-state seller ships a taxable item to a customer in New Mexico, the compensating tax, including New Mexico state and local taxes, would be sourced to the customer’s location.

Who Is Affected?

The change impacts both in-state and out-of-state sellers. As of July 1, 2021, taxpayers must pay state and local rates for most goods and certain services based on the customer’s New Mexico location.

Nexus can be established with New Mexico through physical presence or economic nexus. New Mexico has an economic nexus threshold of $100,000 in sales made during the previous calendar year.

Invoicing Tax to Customers

New Mexico also updated the requirements related to how sellers state the gross receipts tax on their invoices. While there is no requirement for sellers to collect the New Mexico gross receipts tax or compensating tax from the customer, the seller must provide a general statement that the New Mexico gross receipts tax is included in the price of the good or service, if the tax is not separately stated on the customer invoice.

If you would like more information about how this change may apply to your business, contact us. We are here to help.

© 2021