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Taxation

Taxation, New Mexico

The tax environment in Santa Teresa is supportive to business. Taxes are low and many exemptions, credits and incentives exist within New Mexico's tax laws. Taxes and fees affecting commercial operations in Santa Teresa include the Corporate Income Tax, the Gross Receipts and Compensating Tax, Property Tax, the Franchise Fee, and Unemployment Insurance Tax. Taxes affecting individual residents of New Mexico are the Property Tax and the Personal Income Tax.

Corporate Income Tax

Corporate income tax is imposed only on the net income of domestic corporations or foreign corporations’ business within the state or from the state, or deriving income from property or employment within this state. "Corporation" means corporations, joint stock companies, real estate trusts organized and operated under the Real Estate Trust Act and limited liability companies and partnerships taxed as corporations under the Internal Revenue Code. "Net income" is federal taxable income adjusted to exclude amounts not taxable by states. The corporate tax structure levies taxes only on net income of the corporation’s business within the state. Separate entity and federal consolidated group filing is permitted. There is a double-weighted sales apportionment factor option for manufacturers. The corporate income tax piggybacks onto the Internal Revenue Code. The rates, based on federal taxable income rates, are:

  • Up to $500,000: 4.8%
  • $500,000-$1 mil.: $24,000+6.4% over $500,000
  • $1 million plus: $56,000+7.6% over $1million

Corporate Franchise Tax Fee

A uniform fee of $50 per corporation is levied annually. The franchise tax is imposed on each corporation included in the combined unitary or the consolidated tax returns if the corporation exercises its corporate franchise in New Mexico whether or not income tax is due. The requirement to file and pay the franchise tax also falls on anyone who files a federal S-corporation return.

Personal Income Tax

The New Mexico personal income tax (PIT) is based on federal adjusted gross income. The maximum PIT rate is being phased down from 7.7%, in effect for tax year 2004, to 4.9%, effective for tax years beginning 2008. The 2007 maximum PIT rate is 5.3%. The minimum PIT rate is currently 1.7% and is not scheduled to change.

New Mexico imposes a tax on the net income of every resident. Residents are taxed on the net income from employment, unearned income, gambling, pensions, annuities, and income from real or personal property in this state or from businesses located in this state. Non-residents are taxed on the net income from property, employment or business in New Mexico. New Mexico’s personal income tax "piggybacks" on the federal return, using federal adjusted gross income figure as its base. Net income usually equals federal taxable income, although some special deductions are available. New Mexico uses the same dollar amounts as the federal government for personal exemptions, standard deductions and itemized deductions. The 2003 New Mexico Legislature cut the taxable capital gains by half over a period of 5 years. For tax year 2006, the capital gains deduction increases to the greater of 40% or $1,000; and for tax years beginning 2007 New Mexico’s capital gains deduction is the greater of 50% or $1,000.

Gross Receipts Tax

New Mexico’s gross receipts tax differs from a sales tax in that it is levied on the total amount of money or other consideration a business receives from four kinds of transactions in New Mexico:

  • selling property in New Mexico, including tangible personal property, licenses and franchises;
  • leasing property used in New Mexico;
  • licensing property employed in New Mexico;
  • performance of services in New Mexico (construction is a service that includes all the ingredient and component materials and subcontracted construction services); and
  • sale of research and development services performed outside New Mexico when initial use of the product of the R&DR&D service occurs in New Mexico.
The gross receipts tax is not the customer’s tax, but rather the business’s liability. Statutes do not prevent the business from recovering its tax costs from the customer just like any other overhead expense. This is the prevailing practice. The law presumes all transactions taxable unless statute provides a specific exemption or deduction. Exemptions include:
  • wages of employees
  • receipts from interest and dividends
  • vehicles and boats
  • receipts of 501(c)3 nonprofit groups
  • insurance premiums
Deductions include:
  • goods and some services sold for resale
  • exports (when title and risk of loss pass outside New Mexico)
  • sales by suppliers of components in manufacturing processes
  • all construction materials and construction services sold to a construction contractor for use in a construction project
  • receipts from selling tangible personal property to governments (including equipment bought under industrial revenue bonds) or 501(c) (3) organizations but generally receipts from performing services, which includes all construction and receipts from leasing, are not deductible.
A basic 5% state gross receipts tax is supplemented by local option gross receipts tax available to all counties and municipalities. Tribal taxes imposed by certain pueblos are included. The state collects the taxes at the same time and in the same manner as the state gross receipts tax and then distributes the counties’ and municipalities’ share for their use. Because the local taxes are optional, the total gross receipts tax ranges from 5.125% to 7.8125% depending on location. Businesses report according to their locations. There are some exceptions for point-of-delivery businesses like utilities and construction services that report and pay according to the rate in effect at the delivery or construction site.

The tax is on the businesses’ gross receipts. Whether the receipts (net of returns and allowances) are taxable depends on whether the business can take advantage of an exemption or deduction. Transactions among affiliates generally will be treated no differently than transactions among unrelated parties.

Compensating Tax

The compensating tax is a companion tax to the gross receipts tax. It is a “use” tax which is typically levied on the purchaser of the product or service for using tangible property in the state. The tax applies to imports of factory and office equipment, and other items. It is also used to enforce the conditions of many of the gross receipts tax deductions.

Rate is 5% of the value of the property or service at the time of acquisition or introduction into New Mexico, or at the time of conversion to taxable use, whichever is later. Compensating tax is imposed on persons using property, and in some cases, services, in New Mexico on which tax has not been paid to New Mexico or any other state. The tax "compensates" for the absence of a gross receipts tax on the purchase of property for use and is intended to protect New Mexico businesses from unfair competition; hence its name. New Mexico allows a credit against the compensating tax for sales, use or similar taxes paid to another state when the buyer acquired the property.

Property Tax

New Mexico’s property taxes are among the lowest in the country. Taxes are imposed on one-third of assessed value (“net taxable value”), which is typically between 80 and 100 % of market value.

Most property is appraised by county assessors in the county in which it is located. The Taxation and Revenue Department assesses certain types of non-residential property; typically industrial property that extends across county boundaries, including property associated with railroads, pipelines, communication systems and mineral extraction. Property taxes are collected and distributed by county treasurers. Major revenue recipients include counties, municipalities and school districts.

Rates vary substantially and depend on property type and location. Rates applicable to residential property range from about $9 to $38 per $1,000 of net taxable value after exemptions are taken. Non-residential property tax rates range from $12 to $44 per $1,000 of net taxable value. The statewide average rates are about $26 per $1,000 for residential property and $29 per $1,000 for non-residential property, or about .8% of assessed value. Property-in-transit through the state or warehoused for delivery out-of-state is exempt.

Worker’s Compensation Tax Fee

This fee is collected by the Taxation and Revenue Department on behalf of the Worker’s Compensation Administration. Fees are $4.30 per quarter for every employee at end of the quarter; $2 from employee via withholding plus $2.30 from employer. Website for the Workers’ Compensation Administration: http://www.state.nm.us/wca/

Unemployment Insurance Contribution

Employers pay unemployment taxes to state and federal governments, which support the Unemployment Insurance (UI) Program. The law prohibits an employer from deducting money from employees’ wages. A new employer in New Mexico starts out with a UI tax rate of 2.0 % and remains at that rate for a minimum of 4 years. After 4 years, each employer is given an experience rating which can cause a rate to increase or decrease. Employers use the Taxable Wage Base to calculate their employment insurance taxes. The Taxable Wage Base for the year 2007 is $18,600.

Insurance Premium Tax

Traditional insurance companies of all varieties are covered, as are property bondsmen, health maintenance organizations, prepaid dental plans and prearranged funeral plans. The program is administered by the Insurance Division of the Public Regulation Commission. The fee equals 3% of gross premiums, plus an additional 1% surtax on healthcare insurers. It is due by April 15, but quarterly estimated payments are required.

Source:New Mexico Taxation and Revenue Department

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