I live in New Mexico. A few years ago (2006), I did some work as a freelance computer programmer. It was't my primary job, I am employed full time with a company,but I was issued a 1099 by the three companies I did work for. I filed a Schedule C with my Federal return, but I never filed or paid Gross Receipts taxes with the state of New Mexico.
The state recently sent a letter stating I would have to pay GRT for that work.
What are my obligations to the state?
New Mexico's Gross Receipts Tax (called a sales tax by most people) is charged on services as well as goods. As such, if you perform services as an independent contractor such as a software programmer in NM, you are subject to the GRT. As it is a tax on gross receipts, you owe NM x% of the gross receipts reported on the Schedule C or C-EZ. In other words, it is not a tax on your net profit. You need to obtain a NM CRS ID # from NM Tax & Revenue Dept. and file Form CRS-1 for 2006 and pay them.
You can find help, contact information and links to the 2006 GRT tax rates by county/city at the following website:
NM finally joined the twenty-first century toward the end of 2009 when they linked the income tax Schedule C and C-EZ data obtained from the IRS to the GRT computer. They have been sending dunning notices to a lot of people.... most of whom never realized they were subject to GRT.
How much is the tax? Corporations also pay it?
Here's a shortcut to the NM Tax & Rev Dept. pdf files for all years. The rates are typically published twice a year and cover the Jan. - Jun and Jul - Dec periods as rate changes typically take place July 1. For purposes of preparing returns that use the sales tax deduction, we all typically just average the two to obtain an annual rate. The rates are by taxing district within each county. E.g., the County of Santa Fe has
16 different taxing districts. The City of Santa Fe has the highest rate of 8.0625%. The lowest rate in the county is 6.5%. The tables reflect the total of the state rate plus local kickers. In 2010, for the first half of the year, the state component was 5%. For the last half of the year, the state component was 5.125%.
I noticed that I used the first half rates for Santa Fe. The rates went up 1/8% July 1. In addition, the state decided to really screw you up starting July 1. They raised the state rate 1/8% (5% to 5.125%) for property and services. However, they left the compensating rate (what you know as the use tax) for services at 5%. The compensating rate for property went up to 5.125%.
Like many other states, NM has exceptions, exemptions, etc. from the tax. So... sometimes you wind up paying the tax at retail on what you think is food and the state thinks is not food or you pay the tax on what you think is food and the state thinks is food but you didn't buy it at a grocery store or what the state thinks is not a grocery store.
Is this gross receipts tax in addition to the state income tax? So if you make an additional 100k as an independent contractor, you could pay 8.5+4.9.4 of that 100k as state tax?
According to
Yes. You pay income tax and GRT. The GRT you pay is deductible on the Schedule C as a business expense and lowers your net profit subject to income and SE taxes. The SIT is deductible on the Schedule A if you itemize. Up until 2010, the SIT was also deductible on the state income tax return.
So... effectively you are paying income taxes to the state and federal governments, social security & medicare taxes to the federal government and gross receipts tax to the state.
If you are self-employed or running a business and you bill your clients for your services, then you add the GRT to your bill and collect it from the client. That makes you whole. E.g., I just had a service call from a garage repair service. My bill included their service charge for the service call plus the GRT. They remit the GRT to the state when they compute their gross receipts tax.
Independent contractors who are not billing their client (they are paid for their labor and/or service provided) don't get to collect that GRT from their employer. So, they have to pay it when they compute the tax on their gross receipts. Whether or not ICs in New Mexico get paid more for their time than in other places who do not tax services is beyond me. All I know is that if you intend to perform that kind of work in NM, you need to factor the GRT into your asking price.
And finally.... there is no de minimis amount that is not subject to tax.
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