How Has New Mexico Simplified Sales Tax?

Radhika Akhil
May 16, 2023

New Mexico used to be one of a minority of states that applied origin-based local sales tax sourcing while also not applying a complimentary “seller’s use” tax to its local sales tax. Both of these things have changed in recent years. Today, New Mexico joins the majority of states in applying a destination-based tax system with local rates that apply identically regardless of where the seller may be located.

Note, however, that unlike other states that use a traditional sales/use tax system, New Mexico instead follows a Gross Receipts Tax system. In the traditional sales/use tax system, a seller essentially adds a charge on top of the selling price (a percentage of the value of the transaction), which is eventually remitted to the state. On the other hand, a gross receipts tax is a percentage of revenue that the seller must pay to the state, which ultimately comes out of the seller’s total earnings. To recoup this amount, in most cases the seller passes this amount to the customer. It is only from the perspective of the buyer that the effect of the gross receipts tax resembles a standard sales tax scheme.

As a corollary, applying a gross receipts tax system makes services generally taxable as well in New Mexico, which is not the case for the majority of states where services are usually exempt.

New Mexico is also one of the states that imposes only a minimum revenue threshold, which requires a business to register as a response to Wayfair, whereas other states have both a minimum revenue threshold and a minimum transaction count threshold. In New Mexico, the minimum revenue threshold requiring a business to register is $100,000 in annual gross revenue in the previous calendar year.

When you consider these simplifications, alongside its long-standing straightforward tax base (a thumb rule of “taxable unless otherwise”), New Mexico stands out as a state where compliance is fairly manageable.

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Radhika Akhil

Radhika Akhil is Regulatory Counsel in the Sovos Regulatory Analysis and Design Department. Radhika focuses on U.S. sales tax law and Canada transaction taxes and fees. Radhika obtained two B.A. degrees from Boston University and a J.D. from Suffolk University. She is a member of the Massachusetts Bar and the New York Bar.
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