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NM Gross Receipts Tax

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aconnally

Member
What is the name of your state (only U.S. law)? NM

I just got a notice from NM tax office saying I owe gross receipts tax (kinda like sales tax) for years '08-'12.

My situation - I have a mailing address in NM, and a bank account. I don't live there, don't do business there, and none of my clients are in NM.

I am a web designer, and most of my clients are in Texas, but also some in California.

From what I can tell here, http://law.justia.com/codes/new-mexico/2011/chapter7/article9/section7-9-3.5/, I should not be eligible for this tax. I don't sell products or services in NM.

Also, possibly exempted special case here:
http://law.justia.com/codes/new-mexico/2011/chapter7/article9/section7-9-3.3/

I am not sure why I got audited, I do file a NM State Income tax return, but mark nonresident.

Does having an address and bank account qualify as engaging in business in NM?

I assume I need to formally protest this.
 


LdiJ

Senior Member
What is the name of your state (only U.S. law)? NM

I just got a notice from NM tax office saying I owe gross receipts tax (kinda like sales tax) for years '08-'12.

My situation - I have a mailing address in NM, and a bank account. I don't live there, don't do business there, and none of my clients are in NM.

I am a web designer, and most of my clients are in Texas, but also some in California.

From what I can tell here, http://law.justia.com/codes/new-mexico/2011/chapter7/article9/section7-9-3.5/, I should not be eligible for this tax. I don't sell products or services in NM.

Also, possibly exempted special case here:
http://law.justia.com/codes/new-mexico/2011/chapter7/article9/section7-9-3.3/

I am not sure why I got audited, I do file a NM State Income tax return, but mark nonresident.

Does having an address and bank account qualify as engaging in business in NM?

I assume I need to formally protest this.
If you do not live in NM, or engage in business in NM, why do you file even a non-resident tax return? Why do you file one at all in NM? What income do you report on this non-resident tax return?
 

FlyingRon

Senior Member
What do you mean you have a NM mailing address? That address most likely is being considered as to having a gross receipts tax nexus (a business location).
 

aconnally

Member
It is a mailing address of a family member where I receive mail. I do not live there or anything, just receive mail.

Even if the address constitutes a nexus (which I am doubtful because no physical presence), none of my work is performed in NM, and not performed for NM clients. I think they are probably assuming a different situation, that I had a physical presence and location.

From here: http://law.justia.com/codes/new-mexico/2011/chapter7/article9/section7-9-3.5/

(1) "gross receipts" means the total amount of money or the value of other consideration received from selling property in New Mexico, from leasing or licensing property employed in New Mexico, from granting a right to use a franchise employed in New Mexico, from selling services performed outside New Mexico, the product of which is initially used in New Mexico, or from performing services in New Mexico. In an exchange in which the money or other consideration received does not represent the value of the property or service exchanged, "gross receipts" means the reasonable value of the property or service exchanged;
I am not performing services in NM, or selling services performed outside NM, the product of which is initially used in NM.
 
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LdiJ

Senior Member
It is a mailing address of a family member where I receive mail. I do not live there or anything, just receive mail.

Even if the address constitutes a nexus (which I am doubtful because no physical presence), none of my work is performed in NM, and not performed for NM clients. I think they are probably assuming a different situation, that I had a physical presence and location.

From here: http://law.justia.com/codes/new-mexico/2011/chapter7/article9/section7-9-3.5/



I am not performing services in NM, or selling services performed outside NM, the product of which is initially used in NM.
Ok, again, please answer the question as to why you file an income tax return in NM at all? If you do not want to answer the questions asked, we cannot help you. In that instance I suggest that you consult a tax professional in NM.
 

aconnally

Member
Ok, again, please answer the question as to why you file an income tax return in NM at all? If you do not want to answer the questions asked, we cannot help you. In that instance I suggest that you consult a tax professional in NM.
Sorry, I didn't see your question.

I filed, because I thought that's what I should do, to avoid any confusion. I never wanted a question of my hiding my income or something to come up. I have a bank account and mailing address, so was worried someone might think I was trying not to file.

I file income taxes, but my income is so low, it falls below the standard deductions for NM, so I never pay taxes, and because I mark nonresident, I don't get any refunds or anything.

I report all of my income, it's basically my Federal AGI on the NM form.
 

LdiJ

Senior Member
Sorry, I didn't see your question.

I filed, because I thought that's what I should do, to avoid any confusion. I never wanted a question of my hiding my income or something to come up. I have a bank account and mailing address, so was worried someone might think I was trying not to file.

I file income taxes, but my income is so low, it falls below the standard deductions for NM, so I never pay taxes, and because I mark nonresident, I don't get any refunds or anything.

I report all of my income, it's basically my Federal AGI on the NM form.
Where do you actually live? Do you file resident tax returns for that state?

You have really made a mess of things by filing a tax return in NM when you do not live or work there. By doing so, you have indicated to NM that you have NM income...which is why they are going after you for gross income taxes. You are going to need an NM tax professional to help you try to get out of this mess. I am not sure that you will succeed, but you don't have a chance without professional help.
 

aconnally

Member
Where do you actually live? Do you file resident tax returns for that state?
I live in another country. No, I don't file tax returns for another state.

Even if I did live in NM, my services are sold and performed out of state. I am pretty sure that I would not be liable for the gross receipts tax, according to how the law is written. It is for services sold in NM, or to businesses that use those services in NM.

You have really made a mess of things by filing a tax return in NM when you do not live or work there. By doing so, you have indicated to NM that you have NM income...which is why they are going after you for gross income taxes. You are going to need an NM tax professional to help you try to get out of this mess. I am not sure that you will succeed, but you don't have a chance without professional help.
I thought I was doing the right thing by declaring everything above board. I will talk to someone.

Do you think I should try calling the agent listed on the audit notification and explain my situation, or go straight to legal counsel?
 

aconnally

Member
Here's what I found in another forum with a person that had a similar situation to mine. She lived in Santa Fe, but performed services for companies out of state.

I called the state and was redirected to their tax specialist. The interpretation of the law is that if the receiving party did not receive services in New Mexico and he (she or it) used the product basically out of state, then the service provider does not have to pay GRT.

It was strongly recommended that we acquire proof of this in two forms: the address of the recipient clearly needs to be out-of-state, but also the recipient should provide a signed letter attesting to the information above. We were told the following text or variants of it would be acceptable:
===============
To Whom It May Concern:

During the time period from (start date of applicable tax year) through (end date of applicable tax year), all work product provided for us by (provider's name) was primarily for use by our company in the state of (applicable state).

Sincerely,
===============
So, I need to round up addresses for my clients for those years, I guess, and maybe even get them to send me a letter to show my services are not being sold/performed in NM.
 

LdiJ

Senior Member
I live in another country. No, I don't file tax returns for another state.

Even if I did live in NM, my services are sold and performed out of state. I am pretty sure that I would not be liable for the gross receipts tax, according to how the law is written. It is for services sold in NM, or to businesses that use those services in NM.



I thought I was doing the right thing by declaring everything above board. I will talk to someone.

Do you think I should try calling the agent listed on the audit notification and explain my situation, or go straight to legal counsel?
When you file a non-resident income tax return for a state, you are telling that state that even though you do not live there, that you have income generated IN that state. Therefore, they have what to them, is clear cut proof that you have NM generated income, because you TOLD them that you have NM generated income.

Now you want to tell them that you do NOT have NM generated income. They are not just going to believe you. You can try calling them if you like, but it will likely be a pointless exercise.

YOU DO NOT NEED AN ATTORNEY. You need an NM tax professional who can help you figure out what documentation you have, that you can provide, that proves that you are not an NM resident and do not have any NM based income.

For the future STOP filing NM state tax returns unless or until you become a resident of NM again. I would also recommend that you stop using your NM mailing address for your federal tax returns. Use your actual address in the country you reside in.

I have been a tax professional for more than 30 years now. You are not the first nor will you be the last person to make that mistake.
 

aconnally

Member
But this isn't about income, it's gross receipts, for selling services in NM. They are different taxes. I assume that if I show that my services are not sold or performed in NM, then I am not liable for the gross receipts tax.

It's like a sales tax vs income tax. Even if I lived in NM and earned income there, if my services did not meet the requirements of the sales tax, I wouldn't owe sales tax.

Does that make sense?

YOU DO NOT NEED AN ATTORNEY. You need an NM tax professional who can help you figure out what documentation you have, that you can provide, that proves that you are not an NM resident and do not have any NM based income.
Like a CPA?

For the future STOP filing NM state tax returns unless or until you become a resident of NM again. I would also recommend that you stop using your NM mailing address for your federal tax returns. Use your actual address in the country you reside in.

I have been a tax professional for more than 30 years now. You are not the first nor will you be the last person to make that mistake.
Ok, thank you. I will definitely change for the future.
 

LdiJ

Senior Member
But this isn't about income, it's gross receipts, for selling services in NM. They are different taxes. I assume that if I show that my services are not sold or performed in NM, then I am not liable for the gross receipts tax.

It's like a sales tax vs income tax. Even if I lived in NM and earned income there, if my services did not meet the requirements of the sales tax, I wouldn't owe sales tax.

Does that make sense?
I have probably known what gross income/receipts tax is since before you were born. It is a different tax, but its about the same basic income. Once again, you TOLD NM that you have NM generated gross receipts, when you filed the non-resident tax return.


Like a CPA?
You do not need a CPA either. You just need a tax professional experienced in dealing with tax issues. Any tax office that is open this time of year is going to have someone experienced in dealing with these types of problems.


Ok, thank you. I will definitely change for the future.
Good luck.
 

aconnally

Member
I have probably known what gross income/receipts tax is since before you were born. It is a different tax, but its about the same basic income. Once again, you TOLD NM that you have NM generated gross receipts, when you filed the non-resident tax return.
even if the taxable income was zero?

On a separate note, does this mean sole proprietors are taxed twice on the same income? Income tax AND gross receipts?
 

LdiJ

Senior Member
even if the taxable income was zero?
Yes, even if the taxable income was zero.

On a separate note, does this mean sole proprietors are taxed twice on the same income? Income tax AND gross receipts?
More or less. Gross receipts tax is similar to sales tax in that it is paid on the gross income (before expense deductions) of a business.
Income tax is paid on the profits generated from that same gross income.

A simplistic example would be that a business has 80,000 in sales (gross receipts) and paying gross receipt tax on that. Then, after deductions for expenses the business might have a profit of 15k, and pay income tax on that.
 

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