Is Labor Taxable in New Mexico Under Gross Receipts Tax?

Understanding how businesses are taxed on services can be complex, especially in states with unique tax structures. This article clarifies how labor and service activities are treated under New Mexico’s tax system, detailing when and how receipts are also subject to taxation. It covers important exemptions, deductions, and the practical steps for tax registration and payment.

Understanding New Mexico’s Gross Receipts Tax on Services

New Mexico employs a Gross Receipts Tax (GRT), which differs significantly from a traditional sales tax found in most other states. This tax is imposed on businesses for the privilege of engaging in business activities within New Mexico, and it is measured by the total gross receipts a business generates. While businesses commonly pass the GRT onto their customers, the legal responsibility for paying the tax rests with the seller or service provider.

The GRT applies broadly to all receipts from selling property, leasing property, granting a right to use a franchise, or performing services within New Mexico. This comprehensive application means that labor and service activities are generally subject to this tax. Unlike a sales tax, which is typically levied on the final consumer at the point of sale, the GRT is a tax on the business’s entire gross income before deductions.

This means almost any money received by a business for services rendered in New Mexico is considered gross receipts and is taxable. The statewide GRT rate is 5.125%, but local municipal and county rates are added, causing the combined rate to vary significantly across the state. The total GRT rate can range from 5.125% to over 9% depending on where the business activity occurs.

Common Taxable Labor and Service Activities

Most services performed within New Mexico are subject to the Gross Receipts Tax (GRT). This includes professional services provided by individuals or firms, such as legal, accounting, architectural, engineering, and consulting services. When these services are rendered for a fee in New Mexico, the receipts generated are subject to GRT.

Repair and maintenance services also fall under taxable activities. Businesses performing tasks like automotive repairs, appliance servicing, computer maintenance, or property upkeep owe GRT on the income derived from these services. Similarly, construction services, including receipts from both new construction and remodeling projects, are subject to GRT. The definition of “services” for GRT purposes is broad, encompassing most activities engaged in for consideration.

Other common taxable labor and service scenarios include cleaning services, landscaping, personal care services, and various forms of training or instruction. Services performed outside New Mexico can also be taxable if the product of that service is initially used within the state. Businesses engaged in these activities must collect or account for GRT on their gross receipts unless a specific exemption or deduction applies.

Applicable Exemptions and Deductions for Services

While New Mexico’s Gross Receipts Tax (GRT) is broadly applied to services, certain exemptions and deductions can reduce a business’s taxable receipts. Understanding these provisions is important for minimizing tax liability. One common deduction applies to receipts from services sold for resale, provided the buyer furnishes a valid New Mexico Nontaxable Transaction Certificate (NTTC). This certificate indicates the purchasing business will resell the service or incorporate it into a product for resale, shifting GRT responsibility to the next transaction.

Receipts from services provided to certain government agencies, including the United States government and New Mexico state or local government entities, are deductible or exempt under specific conditions. Services provided to certain non-profit organizations, particularly those recognized under Section 501(c)(3) of the Internal Revenue Code, are also exempt from GRT. Businesses must obtain documentation, such as an NTTC or other certifications, from these entities to substantiate the exemption.

Receipts from services performed entirely outside New Mexico are not subject to GRT, even if the customer is located in New Mexico. Businesses must review the requirements for each deduction or exemption, as specific documentation and reporting rules apply.

Registering and Paying New Mexico Gross Receipts Tax

Businesses operating in New Mexico that engage in taxable activities must register with the New Mexico Taxation and Revenue Department (NMTRD) to obtain a Combined Reporting System (CRS) identification number, also known as a New Mexico Business Tax Identification Number (NMBTIN). This registration is a foundational step for GRT compliance. The application requires basic business information, such as entity type, contact details, and the anticipated start date of business activities in New Mexico.

After registering, businesses must determine the correct GRT rate applicable to their transactions. The rate consists of a statewide component and additional local rates imposed by municipalities and counties, meaning the rate varies by the location where the service is performed or the product is delivered. Businesses can find current tax rates and location codes on the NMTRD website or through their Taxpayer Access Point (TAP) portal.

The NMTRD assigns a filing frequency—monthly, quarterly, or annually—based on the business’s estimated gross receipts. Businesses with higher gross receipts file more frequently, such as monthly, while those with lower receipts qualify for quarterly or annual filing. GRT returns are due on the 25th day of the month following the end of the reporting period. Most businesses must file electronically through the NMTRD’s Taxpayer Access Point (TAP) portal, which allows for online submission of returns and electronic payments. After filing, businesses must maintain thorough records of all gross receipts, deductions, and filed returns.