New Mexico LLC Taxes

How Is an LLC Taxed in New Mexico?

Taxation in New Mexico isn’t applied in the same way to all LLCs – instead, it varies depending on a number of factors, such as an LLC’s nature, locality, and tax election.

While LLCs typically benefit from pass-through taxation by default, they can elect to be taxed as one of the following:

• C Corporations: The LLC is treated as a separate entity to its owners, paying corporate income tax rates on its total profit while the owners also pay personal income taxes on any distributions they take.
• S Corporations: In return for paying owners a “reasonable salary,” the LLC’s remaining profits are distributed among members without a need to pay self-employment tax or FICA tax on them.

The following sections go into the various tax responsibilities of your LLC at local, state, and federal levels in New Mexico to help you ensure your LLC navigates them effectively.

New Mexico Local Taxes

Local taxes in New Mexico can vary substantially depending on the municipality in question. Below we have prepared a detailed overview of the most common local taxes that may impact your LLC.

Local Option Taxes

Local option taxes in New Mexico include both municipal and county gross receipts taxes, supplementing the state’s base gross receipts tax rate of 5.125%.

• County gross receipts taxes can vary significantly depending on the county in question. The unrestricted countywide local option rate can reach up to 1.25%, with the county remainder rate being capped at 0.5%. This means that in some counties, LLCs may face combined gross receipts tax rates that are substantially higher than the base state rate.
• Municipal gross receipts taxes, as affected by House Bill 479, can also impact LLCs significantly. The bill increased the unrestricted municipal gross receipts tax from 1.5% to 2.5%. Other specific municipal taxes, like infrastructure and environmental services taxes, have their own capped rates.

Considering the different layers of state, county, and municipal taxes, the total gross receipts tax rate that will need to be paid by an LLC in New Mexico can be quite high. In some locations, combined rates could potentially exceed 9%, depending on the specific county and municipal taxes applied.

Note: For detailed information on county and municipal gross receipts tax local options in New Mexico, see FYI-C120: County Gross Receipts Tax Local Options and FYI-M121: Municipal Gross Receipts Tax Local Options from the New Mexico Taxation and Revenue Department.

Local Liquor Excise Tax

In New Mexico, the Local Liquor Excise Tax is a potential tax that local governments may choose to impose on retailers dealing in alcoholic beverages. Currently, McKinley County is the only county that has implemented this tax, setting the rate at 6% of the purchase price paid by retailers for alcoholic beverages.  LLCs operating as retailers in regions with this tax are required to file and pay it using form RPD-41277.

Property Taxes

Local property taxes in New Mexico are imposed by counties and municipalities, and are based on the assessed value of properties as determined by county assessors.

For LLCs operating in New Mexico, the amount of property tax that will be paid will be contingent on the location — and assessed value — of their property. 

This means that the rate of taxation can differ significally between various counties and municipalitie when it comes to property taxes.

Note: For more information on property taxes, visit the New Mexico Municipal League website.

Local Lodging Tax

The New Mexico Lodgers’ Tax Act allows municipalities in Class A counties, with populations between 60,000 and 70,000 people, to impose a daily lodging surcharge. This surcharge is set at $2.50 per room per day. The revenues from this surcharge are primarily allocated for developing and maintaining facilities like convention centers and for servicing bonds related to such developments. 

Vendors providing lodging are responsible for collecting and remitting these taxes and surcharges to the local governing bodies.

Note: For more information, see the Lodgers’ Tax Best Practices Handbook from the New Mexico Hospitality Association.

New Mexico State Taxes

Every state has its own regulations and rules that dictate how it taxes individuals and businesses. Below is a list of the most relevant state-level taxes for LLCs in New Mexico. 

State Income Tax

The individual New Mexico income tax rates are determined by each member’s filing status and income level. 

Rates begin at 1.7% and progress to a maximum rate of 5.9%, with thresholds varying based on whether members pay income taxes as married filing separately, head of household, or single. 

Note: For more detailed information, see the TRD Publication 3.3 NMAC from the Department of Taxation and Revenue.

LLCs that opt for C corporation tax status are subject to a tiered corporate income tax structure based on their taxable income. The rate is 4.8% on taxable income up to $500,000 and 5.9% on income exceeding that threshold, and only applies to the LLC’s net income that is apportioned to New Mexico.

Note: For comprehensive details on corporate income tax, see the Department of Taxation and Revenue’s FYI-350: Corporate Income Tax and Corporate Franchise Tax. 

Franchise Tax 

The Franchise Tax is a mandatory annual charge for all corporations, which applies to LLCs that elect to be taxed as C Corporations. 

The tax rate is a flat $50 per year for each corporation, regardless of the corporation’s activity level or profitability. This uniform rate applies to all corporations, including those filing as part of a unitary or consolidated group.

Compensating Tax

The Compensating Tax in New Mexico, commonly known as the “use tax” or “buyer pays tax,” is an excise tax applied to the use of certain property and services within the state. This tax aims to level the playing field for New Mexico businesses against out-of-state competitors who are not subject to the state’s gross receipts tax.

The rate for this tax is set at 5.125% for specific property and 5% for certain services used in New Mexico. It is reported through a Combined Reporting System (CRS) form and is due by the 25th day of the month following the transaction period .

Gaming Excise Tax

Gaming activities in the state are subject to an excise tax, known as the gaming tax, which varies based on the participant’s role in the gaming industry. Gaming device manufacturers and distributors pay a 10% tax on their gross receipts from the sale, lease, or transfer of gaming devices. 

For operators of gaming devices, the tax rate is contingent on the nature of the operation: non-profit fraternal organizations are taxed at 10% of net proceeds, whereas other licensed gaming operators face a 26% rate. The gaming taxes, calculated on a monthly basis, are payable by the 15th day of the following month, and the collected revenues are directed to the General Fund.

Note: For further details, visit the Gaming Tax forms and documents section on the New Mexico Department of Taxation and Revenue’s website.

Gross Receipts Tax

Instead of a sales tax, the New Mexico gross receipts tax (GRT) applies to the total amount of money or value received from various business activities, such as selling or leasing property, licensing franchises, and performing services. This tax covers transactions within the state, as well as research and development services done outside New Mexico but utilized within it. 

The GRT rate varies by location, starting at the state base rate of 5.125% and going up to 9.3125%, depending on additional rates imposed by counties and municipalities. These rates can change semi-annually, either in January or July.

Keep in mind that sellers not physically present in New Mexico who exceed $100,000 in taxable gross receipts from sales to customers within the state in a calendar year are also required to register for, collect, and remit GRT. This rule ensures equitable tax collection from businesses significantly engaging in commerce within New Mexico.

Note: For more details, see FYI-105: Gross Receipts and Compensating Taxes from the New Mexico Department of Taxation and Revenue.

Motor Vehicle Excise Tax  

The Motor Vehicle Excise Tax (MVET) in New Mexico is relevant to LLCs engaged in the sale of vehicles. This tax is levied at 4% on the sale price of motor vehicles that need registration in the state. For non-dealer sales, if the declared purchase price is lower than 80% of the N.A.D.A. average trade-in or wholesale value, the N.A.D.A. value is used for tax calculation.

It’s important to note that a substantial penalty applies for late titling of vehicles. If the title application is delayed beyond 90 days, a 50% penalty is imposed on the Motor Vehicle Excise Tax (MVET), effectively increasing the tax rate to 6%.

 Liquor Excise Tax

For LLCs involved in the alcoholic beverage industry in New Mexico, there are specific Liquor Excise Tax rates that will need to be paid. These are based on the type of beverage:

• Spirituous Liquors: Taxed at $1.60 per liter.
• Beer: Regular beer is taxed at $0.41 per gallon, while microbrewer beer has a lower rate of $0.08 per gallon.
• Wine: Standard wine incurs a tax of $0.45 per liter, increasing to $1.50 per liter for fortified wines.
• Small Winegrowers: The first 80,000 liters are taxed at $0.10 per liter, with the rate rising to $.20 per liter for sales exceeding 80,000 liters but less than 950,000 liters.
• Cider: Like regular beer, cider is taxed at $0.41 per gallon.

Note: Wholesalers are responsible for filing this tax using form RPD-41129 by the 25th day of the month following the sale.  

Leased Vehicle Gross Receipts Tax  

The Leased Vehicle Gross Receipts Tax is relevant for New Mexico LLCs involved in the short-term leasing of vehicles. This tax applies when:

• The lease term is six months or less.
• The vehicle is part of a fleet of five or more leased vehicles.
• The vehicle is a passenger automobile accommodating six or fewer adults.
• The vehicle was acquired by the lessor on or after July 1, 1991.

The tax rate for this is set at 5% on the leasing receipts. Keep in mind that these receipts must be reported on the Leased Vehicle Gross Receipts Tax and Surcharge return by the 25th day of the month following the month in which the taxable event occurs.

Federal Taxes

Regardless of where your business is located, if you run an LLC in the US, there are a number of federal taxes you’ll need to pay. Below are some of the main types your LLC may be required to pay for federal tax purposes:

Income Tax

By default, the Internal Revenue Service (IRS) will not treat single and multi-member LLCs as separate entities from you for tax purposes. What this means is that you’ll need to report your share of your LLC’s profits on your individual tax returns and pay federal income tax on them at the personal rate of your tax bracket.

Having said that, keep in mind that LLCs can also elect to be taxed as C corps or S corps, which changes how these taxes are levied in different ways.

Self-Employment Tax

In addition to income tax, members of single- and multi-member LLCs will need to pay federal self-employment taxes on the share of the business’s profits that they report on their personal tax return at the end of the year.

This tax is levied at a flat rate of 15.3% against businesses with net earnings that exceed $400, though it is applied slightly differently to LLCs that have elected to be taxed as S corps or C corps.

Employer Taxes

If your LLC hires any employees, it will need to withhold a portion of their salaries to cover various types of taxes on your employees’ behalf – including Social Security, Medicare (FICA), and payroll taxes.

Furthermore, the members of any LLCs that have elected to be taxed as an S corp will be required to pay employment taxes on their salaries. However, in return for this, the remainder of the business’s profit after these salaries have been distributed will be safe from both self-employment and FICA taxes.

Excise Tax

If your LLC engages in certain types of business (such as the sale of alcohol and tobacco or operating a heavy highway vehicle, among others), it may need to pay federal excise taxes in order to do so legally. Each excise tax comes with its own set of rules, rates, and filing obligations you’ll need to be aware of.

Understanding and fulfilling these federal tax obligations is crucial for keeping your LLC compliant and avoiding unnecessary financial penalties and/or fines.

How to File LLC Taxes in New Mexico

Below, we’ve outlined the general process an LLC in New Mexico will need to follow in order to file their tax return correctly. Note that the specificities of each step will vary slightly depending on how your LLC is organized and the specific locality it’s based in. 

Step 1: Gather Your Documentation

To ensure accurate tax filing, thorough record-keeping is essential. Begin by collecting your personal information, including:

• You and your partner’s Social Security number, date of birth, and residential address
• The previous year’s tax returns
• Your LLC’s Federal Tax Identification Number or Employer Identification Number (EIN)

Then, you’ll need to gather all documentation related to your business’s income, such as:

• Invoices you’ve issued
• Sales transaction logs
• Electronic payment reports from services like PayPal or Stripe

Lastly, assemble all records pertaining to your business expenses, which should cover:

• Lease receipts for your business premises
• Bills for utilities
• Records of office supplies purchases
• Documentation of business-related travel
• Payroll records for employees

Note: Depending on how your LLC is organized and its tax election, you may need different information for your tax return.

Step 2: Find The Right Tax Forms

Once you’ve gathered all necessary documents, the next step is to select the correct tax forms for your LLC based on its organization:

• Single-Member LLCs: The business’s total income and expenses are reported on a Schedule C form, which is attached to the owner’s personal tax return and due by April 15 or the following business day if it lands on a weekend or holiday.
• Multi-Member LLCs: File an information return using Form 1065. Members must fill out a Schedule K-1 showing their individual earnings or losses by March 15 or the next business day.
• C Corporations: File a corporate tax return using Form 1120 by the April 15 deadline or on the next business day if it’s a weekend or holiday.
• S Corporations: Use Form 1120-S for the corporate tax return and distribute Schedule K-1 forms to shareholders for reporting their shares of profits or losses. The deadline for filing taxes using 1120-S is March 15 or the following business day.

Since state and local taxes will have their own individual forms and requirements, we recommend contacting your municipality or hiring an accountant for guidance.

With the appropriate documentation gathered and the correct tax forms for your business entity on hand, you’ll be ready to fill them out and submit them.

Step 3: File Your Taxes

The majority of businesses choose electronic filing for its speed, enhanced security, and reliability compared to paper filing, which can be slower and more prone to errors. Here’s how it works:

• Federal Tax Returns: The IRS provides two electronic services for tax submission: Free File for businesses with an AGI below $72,000 and Free Fillable Forms for those above the threshold.
• State Tax Returns: LLCs operating in New Mexico can efficiently manage their state tax obligations through the streamlined Taxpayer Access Point (TAP).
• Local Tax Returns: For information on filing your local tax returns, it is recommended to contact your local tax authority.  

Note: These electronic filing tools are best suited for those who are already confident in handling their LLC taxes as if filling out a paper form. 

For new business owners, we recommend opting for the expertise of a tax professional in order to ensure both accuracy and compliance in your tax filings. 

Recommended: Schedule a free consultation with 1-800Accountant to stay on top of your taxes.

Keep Your New Mexico LLC Compliant

While LLCs are generally easier to maintain than corporations, there are certain state and local formalities your LLC must satisfy in order to remain compliant. 

Licensure and Tax Requirements

In New Mexico, almost all businesses are required to obtain various licenses and permits at the local, state, and federal levels. Below, we’ve broken down three of the most common types your LLC may need:

• Gross Receipts Tax Registration (GRT): All businesses in New Mexico, including both physical establishments and online entities, must obtain a GRT registration number through the Taxpayer Access Point.
• Professional Licenses: If your LLC is offering professional services such as healthcare, law, or engineering in New Mexico, you may need to obtain licenses from relevant state boards. For instance, healthcare-related services require licensing from the New Mexico Medical Board.
• Environmental Permits: If your LLC operates in sectors like construction, manufacturing, or waste management, you may need to secure permits from the New Mexico Environment Department in order to comply with state regulations.

Note: For more information on statewide licenses and permits, visit the State License and Permits section on the New Mexico Business Portal.