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Key takeaways
- Understand New Mexico sales tax
- Learn about New Mexico sales tax rates
- Learn the consequences of failing to pay New Mexico sales tax
- Understand how to register for sales tax in New Mexico
Who needs to collect New Mexico sales tax?
Businesses in New Mexico are generally required to collect sales tax provided they meet specified criteria outlined by the state's tax regulations. The New Mexico Taxation and Revenue Department manage the scheme for collecting sales taxes, which also sets guidelines that businesses must follow. For a business to be obligated to collect sales tax in New Mexico, the following prerequisites must be satisfied:
- Nexus:
A business must have a nexus, or physical presence, in New Mexico to be assessed for sales tax. This includes having assets, workers, or a physical presence within the state. Additionally, if a business conducts sales through internet channels and meets specific criteria, it can be considered to have nexus.
- Gross Receipts:
Businesses that sell tangible personal property, specific services, or lease or rent property are generally required to collect sales tax. This includes retail stores, restaurants, contractors, service providers, and many other types of businesses. However, specific exemptions and deductions may apply to certain transactions or industries.
- Thresholds:
Specific thresholds have been established by the New Mexico Taxation and Revenue Department for out-of-state companies that conduct business there. A company may need to apply for a New Mexico Gross Receipts Tax Identification Number and begin collecting sales tax on its domestic sales if it hits certain limits.
New Mexico sales tax rates
New Mexico has various rates for its many types of sales taxes. The state imposes a gross receipts tax instead of a regular sales tax, and the rates might differ between cities, counties, and special taxing districts. The following are essential specifics regarding the New Mexico sales tax rates:
1. Statewide Rate:
According to my research, with a September 2021 cutoff, New Mexico's statewide gross receipts tax rate is 5.125%. Unless a particular locality levies an additional tax, this rate applies to most transactions inside the state.
2. Local Rates:
Local governments in New Mexico have the authority to impose additional gross receipts taxes on top of the statewide rate. These local rates can vary and are typically used to fund local services and projects. Therefore, businesses must be aware of the rates specific to their location.
3. Special Districts:
Certain special taxing districts, such as municipal or county districts, may exist within the state, which can impose additional gross receipts taxes. These districts can have varying rates based on their specific needs and priorities.
4. Food and Prescription Drugs:
In New Mexico, food sales for human consumption and prescription drugs are generally exempt from the gross receipts tax. However, prepared foods like restaurant meals are subject to tax.
Do you have a Nexus in New Mexico?
Establishing sales tax nexus in New Mexico generally refers to creating a sufficient connection or presence that triggers the obligation to collect and remit sales tax. The following factors can contribute to establishing sales tax nexus in the state:
- Physical Presence:
Having a physical presence in New Mexico can establish nexus. This includes having a physical office, store, warehouse, or any other type of physical location within the state.
- Economic Nexus:
In addition to physical presence, New Mexico has implemented economic nexus thresholds. If a business exceeds a certain level of sales or transactions in the state, it may be considered to have economic nexus and be required to collect and remit sales tax. The New Mexico Taxation and Revenue Department determines the specific thresholds, and can change over time.
- Marketplace Facilitators:
Suppose a business sells its products or services through online platforms or marketplace facilitators with a physical presence or meets economic nexus thresholds in New Mexico. In that case, it may be deemed to have nexus and be responsible for sales tax collection.
- Affiliate Nexus:
If a business has affiliates or related entities with a physical presence or economic nexus in New Mexico, it may also trigger nexus for the business.
What happens if you fail to collect New Mexico sales tax?
Failure to collect and remit New Mexico sales tax can result in penalties, interest, and potential legal consequences. The New Mexico Taxation and Revenue Department enforces compliance with sales tax laws and imposes penalties for non-compliance. Here are some details regarding penalties and interest for late payments:
Late Payment Penalty:
A late payment penalty may be assessed if a business fails to remit the sales tax by the due date. The penalty is generally 2% of the tax due per month or part of a month that the payment is late, up to a maximum of 20% of the tax due.
Interest:
In addition to the late payment penalty, interest accrues on the unpaid tax amount. The New Mexico Taxation and Revenue Department set the interest rate, generally based on the prime rate plus 4%.
Negligence or Fraud Penalties:
Additional penalties may apply if the failure to collect and remit sales tax is due to negligence or intentional fraud. The penalties can be substantial and can include fines and potential criminal charges.
Audits and Assessments:
The New Mexico Taxation and Revenue Department can conduct business audits to ensure compliance with sales tax laws. If discrepancies or non-compliance are found during an audit, the department can assess additional taxes, penalties, and interest based on the findings.
How to register for sales tax in New Mexico?
To register for sales tax in New Mexico, businesses must follow a specific process and provide certain documents to the New Mexico Taxation and Revenue Department. Here is an overview of the registration process and the documents required:
1. Determine Nexus:
Before registering, determine if your business has nexus in New Mexico. Nexus can be established through physical presence, economic thresholds, or other factors. Ensure you meet the criteria that require sales tax registration.
2. Obtain a CRS Identification Number:
To begin the registration process, businesses must obtain a Combined Reporting System (CRS) Identification Number. This number is used for various tax-related purposes in New Mexico. You can apply for a CRS Identification Number online through the New Mexico Taxpayer Access Point (TAP) portal.
3. Complete the CRS-1 Application:
Once you have your CRS Identification Number, complete the CRS-1 Application. This application is used for registering your business for gross receipts tax, which includes sales tax. You can apply electronically through TAP.
4. Provide Required Information:
The CRS-1 Application will require you to provide information about your business, including its legal name, trade name (if applicable), federal employer identification number (FEIN), business address, contact information, and other relevant details.
5. Submit Supporting Documents:
Along with the application, you may be required to submit supporting documents such as a copy of your FEIN confirmation letter, articles of incorporation, partnership agreement, or other documentation that verifies your business's legal structure and ownership.
6. Await Confirmation:
After submitting the CRS-1 Application and supporting documents, you must wait for the New Mexico Taxation and Revenue Department to process your registration. Once approved, you will receive your gross receipts tax identification number.
7. How to file sales tax in New Mexico?
Filing sales tax in New Mexico involves reporting and remitting the collected sales tax to the New Mexico Taxation and Revenue Department. Here's an overview of the sales tax filing process in New Mexico:
8. Determine Filing Frequency:
New Mexico determines the filing frequency based on the amount of gross receipts tax collected by a business. The filing frequencies can be monthly, quarterly, or annually. The department assigns businesses a filing frequency.
9. Obtain a CRS-1 Form:
The CRS-1 form reports gross receipts and calculates the sales tax owed. You can access the CRS-1 form on the New Mexico Taxation and Revenue Department's website or through their online portal called the Taxpayer Access Point (TAP).
10. Report Gross Receipts:
On the CRS-1 form, report the total gross receipts received during the reporting period. Different lines on the form may be designated for different types of receipts, such as taxable sales, nontaxable sales, and deductions.
11. Calculate and Report Sales Tax:
Calculate the sales tax owed based on the applicable tax rate(s) and the reported gross receipts. The form will guide you through the calculation process. Report the calculated sales tax amount on the CRS-1 form.
12. Submit the CRS-1 Form:
Once the form is completed, submit it to the New Mexico Taxation and Revenue Department. This can be done electronically through the TAP portal or by mail if necessary. Be sure to submit the form and payment by the due date.
13. Remit Payment:
Along with the CRS-1 form, remit the payment for the sales tax owed. Payment can be made electronically through the TAP portal using various payment methods, such as ACH debit or credit card. Alternatively, a check can be mailed to the department.
14. Maintain Records:
Keep records of your sales tax filings, CRS-1 forms, and supporting documentation for the required retention period. These records should be readily accessible for future reference or in case of an audit.
How to collect New Mexico sales tax?
First and foremost, it is essential to determine if your business is required to collect sales tax in New Mexico. Generally, businesses with a physical presence or nexus within the state must collect sales tax. Once you have established this, you can proceed with the following steps.
1. Register for a New Mexico CRS (Combined Reporting System) tax account:
Register your business with the New Mexico Taxation and Revenue Department (TRD). This can be done online through their official website or by submitting the required forms via mail.
2. Determine the applicable tax rates:
New Mexico has varying tax rates depending on the location. You should identify the correct tax rates based on where your business operates or delivers goods/services.
3. Collect sales tax from customers:
When making a sale, ensure you charge the appropriate sales tax amount on taxable items or services. Display the tax amount separately on invoices or receipts provided to customers.
4. Record and track sales tax:
Maintain accurate records of all sales transactions, including the sales tax collected. This will aid in filing your sales tax return accurately and on time.
5. File sales tax returns:
New Mexico requires businesses to file sales tax returns regularly, even if no tax is due. The frequency of filing depends on your business's gross receipts. Ensure timely submission of returns to avoid penalties or interest charges.
6. Remit sales tax payments:
Along with filing your sales tax returns, remit the collected sales tax to the New Mexico TRD. Payments can be made electronically through the CRS system or via mail with a check or money order.
New Mexico sales tax deadlines
The filing frequency for sales tax returns in New Mexico is determined by the number of gross receipts your business generates. The options for filing frequency are as follows:
1. Monthly filing:
If your business has an annual gross receipt of $500,000 or more, you must file sales tax returns monthly. The deadline for filing monthly returns is on the 25th day of the month following the reporting period.
2. Quarterly filing:
Businesses with annual gross receipts between $60,000 and $500,000 can file quarterly sales tax returns. The quarterly deadlines are as follows:
- Q1 (January - March): April 25th
- Q2 (April - June): July 25th
- Q3 (July - September): October 25th
- Q4 (October - December): January 25th
3. Yearly filing:
Businesses with an annual gross receipt of less than $60,000 can choose to file sales tax returns annually. The deadline for yearly filing is also January 25th.
Conclusion
In conclusion, understanding and adhering to the sales tax filing deadlines in New Mexico is of utmost importance for businesses operating within the state. Businesses must determine if they must collect sales tax in New Mexico based on their physical presence or nexus. Once the obligation is established, businesses must register for a New Mexico CRS tax account and determine the applicable tax rates based on location.
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