WHICH GOODS AND SERVICES ARE TAXABLE?
Determining whether or not the products or services your company sells are taxable in New Mexico is the first step in sales tax compliance.
Traditional Goods or Services
Goods that are subject to sales tax in New Mexico include physical property, like furniture, home appliances, and motor vehicles.
Prescription medicine, groceries, and gasoline are all tax-exempt.
New Mexico is unique in the fact that the state requires gross receipts tax to be paid on all services.
Digital Goods or Services
A digital good or service is anything electronically delivered, such as an album downloaded from iTunes or a film purchased from Amazon.
New Mexico requires businesses to collect sales tax on the sale of digital goods or services.
HOW TO REGISTER FOR NEW MEXICO SALES TAX
If you determined that you need to charge sales tax on some or all of the goods and services your business sells, your next step is to register for a seller's permit. This allows your business to collect sales tax on behalf of your local and state governments.
In order to register, you will need the following information:
- Personal identification info (SSN, address, etc.)
- Business identification info (EIN, address, etc.) – Business owners other than sole-proprietors/individuals with no employees must obtain a FEIN number from the IRS
- Business entity type
- Date started doing business in New Mexico
- Accounting method (cash/accrual)
- Primary business type
Save Money with a Resale Certificate
With a resale certificate, also known as a reseller's permit, your business does not have to pay sales tax when purchasing goods for resale.
COLLECTING SALES TAX
After getting your seller's permit and launching your business, you will need to determine how much sales tax you need to charge different customers. To avoid fines and the risk of costly audits, it's important for business owners to collect the correct rate of sales tax.
When calculating sales tax, you'll need to consider the following kinds of sales:
- Store Sales
- Shipping In-State
- Out-of-State Sales
For traditional business owners selling goods or services on-site, calculating sales tax is easy: all sales are taxed at the rate based on the location of the store.
Here's an example of what this scenario looks like:
Mary owns and manages a bookstore in Dora, New Mexico. Since books are taxable in the state of New Mexico, Mary charges her customers a sales tax rate of 7.375% on all sales. This includes the state sales tax rate of 5.125% and the city sales tax rate of 2.250%.
The state of New Mexico follows what is known as a destination-based sales tax policy. This means that long-distance sales within New Mexico are taxed according to the address of the buyer. This policy applies to state, county, and city sales taxes.
Consider the following example:
Steve runs his own business selling electronics on eBay out of his home in Albuquerque, New Mexico. A customer living in Santa Fe, New Mexico finds Steve’s eBay page and purchases a $350 pair of headphones. When calculating the sales tax for this purchase, Steve applies the 8.3125% tax rate for Santa Fe. This brings the total cost of the item to $375.81 with $25.81 in sales tax.
New Mexico businesses only need to pay sales tax on out-of-state sales if they have nexus in other states. Nexus means that the business has a physical presence in another state.
Common types of nexus include:
- A physical location, such as an office, store, or warehouse
- An employee who works remotely or who is a traveling sales representative
- A marketing affiliate
- Drop-shipping from a third party seller.
- A temporary physical location, including festival and fair booths.
FILE YOUR SALES TAX RETURN
Now that you’ve registered for your New Mexico seller's permit and know how to charge the right amount of sales tax to all of your customers, you are all set to file your sales tax return. Just be sure to keep up with all filing deadlines to avoid penalties and fines.
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How to File
New Mexico requires businesses to file sales tax returns and submit sales tax payments online.
How Often Should You File?
How often you need to file depends upon the total amount of sales tax your business collects.
- Semi-Annual filing: If your business collects less than $1,200 in sales tax in a 6 month period then your business should elect to file returns on a semi-annual basis.
- Quarterly filing: If your business collects less than $200 in sales tax per month then your business should elect to file returns on a quarterly basis.
- Monthly filing: If your business collects more than $200 in sales tax per month then your business should file returns on a monthly basis.
- Seasonal filing: Businesses doing business only during a specific time of year, e.g., firewood vendors or Christmas tree sales. You must indicate month(s) for which you will be filing and file for those respective months on a monthly basis.
- Temporary filing: Usually set up for one-time filing. A start date and an end date are required. There is a maximum of six months.
Note: New Mexico requires you to file a sales tax return even if you have no sales tax to report.
All New Mexico sales tax return deadlines fall on the 25th day of the month, unless it is a weekend or federal holiday, in which case the deadline is moved back to the next business day. Below is a list of this year’s filing deadlines:
- (Jan. - June): Due July 25
- (July - Dec.): Due Jan. 25
- Q1 (Jan. - Mar.): Due April 25
- Q2 (April - June): Due July 25
- Q3 (July - Sept.): Due Oct. 25
- Q4 (Oct. - Dec.): Due Jan. 25
Monthly filing: The 25th of the following month, or the next business day, e.g. April 25th for the month of March, or May 25th for the month of April.
Penalties for Late Filing
New Mexico charges a late filing penalty of 2% per month or partial month up to a maximum of 20% of the tax that is reported on the tax return until the tax is filed.
New Mexico also charges a late payment penalty that is equal to 2% per month up to 20% of the tax that is unpaid if the tax has been filed at the very least.
The state assesses the unpaid tax with a compounded interest rate of 4% per year or 0.33% per month or partial month for any unpaid tax or penalty.