What Is Exempt From New Mexico Gross Receipts Tax?

New Mexico’s Gross Receipts Tax (GRT) is a broad-based tax imposed on businesses for engaging in activities within the state. This tax applies to a wide range of receipts, including those from selling property, leasing property, granting franchises, and performing services. While comprehensive, the state recognizes certain transactions and entities that are not subject to the tax. This article clarifies what specific transactions and entities qualify for exemption.

Understanding Exemptions and Deductions

An exemption refers to receipts entirely excluded from the New Mexico Gross Receipts Tax base. When a receipt is exempt, the transaction generating that income is not subject to the GRT from the outset. This exclusion directly reduces the gross receipts on which tax is calculated.

Deductions, conversely, are amounts that reduce total gross receipts after the transaction has been initially recognized as taxable. While a transaction may fall within the scope of gross receipts, a specific deduction allows a business to subtract a portion or all of that receipt before applying the tax rate. Receipts from the sale of tangible personal property for resale are examples of common deductions. Distinguishing between an exemption and a deduction is important for accurate tax calculation and compliance, as deductions often require specific reporting on tax returns.

Common Categories of Exemptions

Several broad categories of transactions are not subject to New Mexico Gross Receipts Tax. Receipts from selling tangible personal property for resale, often called wholesale transactions, are generally not taxed. This principle helps avoid taxing the same goods multiple times as they move through the distribution chain, with the tax applying at the final retail sale to the end consumer.

Certain interstate commerce transactions also fall into general exemption categories. Receipts from services performed entirely outside the state for use outside the state are not taxed. Additionally, sales made directly to governmental agencies, including federal, state, local, and tribal entities, are often exempt from the tax. This exemption recognizes the governmental status of the purchaser and the public purpose of their acquisitions. These common exemptions aim to prevent double taxation or to respect jurisdictional boundaries.

Specific Transaction Exemptions

New Mexico’s tax framework includes specific exemptions for transactions that benefit the public or serve defined policy objectives. Receipts from the sale of food for home consumption are generally exempt from Gross Receipts Tax. This exemption aims to reduce the tax burden on essential household necessities. Sales of prescription drugs and oxygen, including oxygen services provided by licensed Medicare durable medical equipment providers, are also not subject to the tax.

Certain medical services also receive specific tax treatment. Receipts of healthcare providers, other than hospitals, from payments by the United States Department of Health and Human Services under specific federal acts, or from the medical assistance division of the human services department for certain Medicaid programs, are exempt.

Receipts from the sale of unprocessed agricultural products by growers, producers, or trappers are exempt, as are receipts from selling livestock or live poultry. However, receipts from selling dairy products at retail are not exempt. Isolated or occasional sales of property or services by a person not regularly engaged in that business are also exempt.

Exemptions for Certain Entities

The status of specific organizations and entities can lead to exemptions from New Mexico Gross Receipts Tax on their transactions. Receipts of the United States government, the state of New Mexico, or any Indian nation, tribe, or pueblo from activities on their sovereign territory are generally exempt. This applies to receipts from their sales, leasing property, granting franchises, or providing services. However, certain receipts of political subdivisions, such as those from owning or operating a gas or electric utility or a municipal cable television system, might not be exempt.

Certain nonprofit organizations also qualify for exemptions. Receipts of organizations granted federal income tax exemption under Section 501(c)(3) of the Internal Revenue Code, which are primarily religious, charitable, or educational, are generally exempt from GRT. This exemption applies to business income directly related to the organization’s mission. Receipts from dues and registration fees of nonprofit social, fraternal, political, trade, labor, or professional organizations are also exempt. Receipts from an unrelated trade or business, as defined by federal tax law, are usually taxable for these entities.

Documenting Exempt Transactions

Proper documentation is important to support any claimed exemption from New Mexico Gross Receipts Tax. Businesses need to obtain and retain specific documents from their customers to substantiate why a transaction was not taxed. The primary document for this purpose is the Nontaxable Transaction Certificate (NTTC).

NTTCs provide conclusive evidence that receipts from a qualified transaction are deductible from gross receipts. An NTTC must be properly executed by the purchaser. It generally includes information such as the buyer’s name, address, New Mexico Business Tax Identification Number (NMBTIN), the reason for the exemption, and the type of transaction. For example, a Type 5 NTTC is used for services for resale, while a Type 9 NTTC is often used for tangible personal property sold to a 501(c)(3) organization. Taxpayers can obtain and manage NTTCs through the New Mexico Taxation and Revenue Department’s website, particularly via their Taxpayer Access Point (TAP) online system.