New Mexico Register / Volume XXXVI, Issue 4
/ February 25, 2025
This is an amendment to 3.2.1 NMAC, Section 18, effective
2/25/2025.
3.2.1.18 GROSS RECEIPTS: SERVICES
GENERALLY:
A. Receipts from performing a service in New Mexico or performing
a service outside New Mexico the product of which is initially used in New
Mexico. Receipts derived from performing a service in New Mexico or performing
a service outside New Mexico the product of which is initially used in New
Mexico are subject to the gross receipts tax unless a specific exemption or
deduction provided for in the Gross Receipts and Compensating Tax Act applies.
B. Sales of state licenses by nongovernmental entities:
(1) Amounts retained by nongovernmental
entities as compensation for services performed in selling state licenses are
gross receipts.
(2) Example: G owns and operates a small grocery store in
rural New Mexico which is located near a popular fishing area. As a convenience to the public, G sells New
Mexico [Game and Fish] game and fish licenses. For its services
in selling these licenses, G retains a small percentage of the total license
fee. The amounts retained are gross
receipts because they are receipts derived from services performed in New
Mexico. G may not deduct the amounts
retained pursuant to Section 7-9-66 NMSA 1978 which deals with commissions
derived from the sale of tangible personal property not subject to the gross
receipts tax. A New Mexico game and fish
license is not tangible personal property pursuant to [Subsection J of]
Section 7-9-3 NMSA 1978.
C. Stockbrokers' commissions: Gross receipts include commissions received by
stockbrokers for handling transactions. The commissions are receipts from
performing a service.
D. Directors' or trustees' fees: Receipts from attending a board of directors
or board of trustees meeting in New Mexico are gross receipts from performing
services in New Mexico. Receipts from
attending a board of directors or board of trustees meeting outside New Mexico
are not gross receipts because the initial use of the product of the service is
not in New Mexico.
E. Racing receipts:
(1) Unless the receipts are exempt under
Section 7-9-40 NMSA 1978:
(a) the receipts of vehicle or animal
owners from winning purse money at races held in New Mexico are receipts from
performing services in New Mexico and are subject to the gross receipts tax if
any charge is made for attending, observing or broadcasting the race.
(b) receipts of vehicle drivers, animal
riders and drivers and other persons from receiving a percentage of the owner's
purse are receipts from performing services in New Mexico and are subject to
the gross receipts tax, unless the person receiving the percentage of purse
money is an employee, as that term is defined in 3.2.105.7 NMAC, of the owner.
(2) Where there is an agreement between
the driver, rider or other person and the owner for distribution of the winning
purse, then only the amount received pursuant to the agreement is gross
receipts of the driver, rider or other person receiving the distribution.
(3) Racetrack operators. Receipts of operators of racetracks other
than horse racetracks, from gate admission fees and entrance fees paid by
drivers are subject to the gross receipts tax. Any portion of these fees paid out
by the operator as prizes are not exempt or deductible
since the payments are part of the operator's cost of doing business.
F. Advertising services:
The service of advertising is performed and
initially used at the location of the intended recipient or viewer regardless
of where related services may be performed or the location of the advertiser
who purchases the advertising services.
(1) Advertising receipts of a newspaper
or broadcaster. The receipts of a New
Mexico newspaper or a person engaged in the business of radio or television
broadcasting from performing advertising services in New Mexico do not include
the customary commission paid to or received by a nonemployee advertising
agency or a nonemployee solicitation representative, when said advertising
services are performed pursuant to an allocation or apportionment agreement entered into between them prior to the date of payment.
(2) Advertising space in pamphlets. Receipts from selling advertising service to
New Mexico merchants in a pamphlet printed outside New Mexico and distributed
wholly inside New Mexico are receipts from performing an advertising service in
New Mexico. Such receipts are subject to
the gross receipts tax.
(3) Billboard advertising. Receipts derived from contracts to place
advertising on outdoor billboards located within the state of New Mexico are
receipts from performing an advertising service in New Mexico. Such receipts
are subject to the gross receipts tax, regardless of the location of the
advertiser.
G. Day care centers or licensed
child care assistance programs:
(1) Receipts from providing day care are
receipts from performing a service and are subject to the gross receipts tax unless
an applicable deduction exists.
(2) Receipts from providing day care for
children in a situation where a commercial day care center provides day care
for the children and the expenses of the care for some of these children is
paid for by the state of New Mexico are subject to the gross receipts tax. However, the deduction under Section
7-9-77.2 NMSA 1978 may apply.
(3) Receipts from providing day care for
children in a situation where a person provides day care for children in a
residence and the care for all these children is paid for by the state of New
Mexico are subject to the gross receipts tax. However, the deduction under Section
7-9-77.2 NMSA 1978 may apply.
(4) Receipts from providing day care for
children in a situation where a person provides day care for children in the
children's home and the care for [all of these] the children is
paid for by the state of New Mexico are subject to the gross receipts tax. However, the deduction under Section
7-9-77.2 NMSA 1978 may apply.
H. Child care:
(1) Receipts derived by a corporation for
providing child care facilities for its employees are subject to the gross
receipts tax on the amount received from its employees.
(2) Example: The X corporation operates a licensed child
care facility to accommodate dependent children of its employees. In order to defray a portion of the cost of the facility,
the corporation charges each employee [two dollars ($2.00)] a fee
per child per week for the use of the facility. All receipts from the [two-dollar charge]
fee per child per week are subject to the gross receipts tax.
I. Service charges; tips:
(1) Except for tips, receipts of hotels,
motels, guest lodges, restaurants and other similar establishments from amounts
determined by and added to the customer's bill by the establishment for
employee services, whether or not such amounts are
separately stated on the customer's bill, are gross receipts of the
establishment.
(2) A tip is a gratuity offered to
service personnel to acknowledge service given. An amount added to a bill by
the customer as a tip is a tip. Because the tip is a gratuity, it is not gross
receipts.
(3) Amounts denominated as a
"tip" but determined by and added to the customer's bill by the
establishment may or may not be gross receipts. If the customer is required to pay the added
amount and the establishment retains the amount for general business purposes,
clearly it is not a gratuity. Amounts
retained by the establishment are gross receipts, even if labeled as
"tips". If the customer is not
required to pay the added amount and any such amounts are distributed entirely
to the service personnel, the amounts are tips and not gross receipts of the
establishment.
(4) Examples:
(a) Restaurant R has a policy of charging
parties of six or more a set percentage of the bill for food and drink served
as a tip. If a customer insists on
another arrangement, however, the set amount will be removed. R places all amounts
collected from the set tip percentage into a pool [which] that is
distributed to the service staff at the end of each shift. The amounts designated as tips and collected
and distributed by R to the service staff are tips and not gross receipts. If R retains any amounts derived from the set
tip percentage, the amounts retained are gross receipts.
(b) Hotel H rents rooms for banquets and
other functions. In addition to the rental fee for the room, H [also]
charges amounts for set-up and post-function cleaning.
H retains these amounts for use in its
business. These amounts are gross receipts. They are gross receipts even if H denominates
them as "tips".
J. Entertainers: The
receipts of entertainers or performers of musical, theatrical or similar
services in New Mexico are subject to the gross receipts tax.
K. Data access charges: Receipts from fees or charges made in
connection with property owned, leased or provided by the person providing the
service are subject to the gross receipts tax when the information or data
accessed is utilized in this state.
L. Allied company underwriting automotive service contracts:
When a New Mexico automotive dealer pays
an entity [which] that is allied or affiliated with that dealer
(allied company) to undertake all of the dealer's obligations under automotive
service contracts as that term is defined in Subsection C of 3.2.1.16 NMAC on
which the dealer is promisor, the undertaking of the allied company does not
involve the sale of property in New Mexico or the lease of property employed in
New Mexico. The undertaking principally
involves an obligation of the allied company to indemnify the dealer by paying
the dealer for furnishing parts and labor to fulfill the dealer's obligation to
furnish the parts and labor. However,
the undertaking also involves the performance of services by the allied company
for the dealer since the allied company undertakes to handle the claims of
automotive service contract purchasers and otherwise perform the dealer's task
under the contract. Absent a showing of
a different value by the allied company or the department, seven and a half
percent of the contract amount paid by the dealer to the allied company will be
treated as consideration received for services performed in New Mexico.
M. Custom software:
(1) Receipts derived by a person from
developing custom software are receipts from performing a service.
(2) When custom software is developed by
a seller for a customer, but the terms of the transaction restrict the
customer's ability without the seller's consent to sell the software to another
or to authorize another to use the software, the seller's receipts from the
customer are receipts from the performance of a service. The seller's receipts
from authorizing the customer's sublicensing of the software to another person
are receipts from granting a license.
N. Check cashing is a service: Receipts from charges made for cashing
checks, money orders and similar instruments by a person other than the person
upon whom the check, money order or similar instrument is drawn are receipts
from providing a service, not from originating, making or assuming a loan. Such
charges are not interest.
O. Receipts of collection agencies:
(1) The fee charged by a collection
agency for collecting the accounts of others is gross receipts subject to the
gross receipts tax, regardless of whether the receipts of the client are
subject to gross receipts tax and regardless of whether the agency is prohibited
by law from adding its gross receipts tax amount to the amount collected from
the debtor.
(2) Example
1: X is a cash basis taxpayer utilizing
the services of Z collection agency for the collection of delinquent accounts
receivable. From its New Mexico offices, Z collects from X's New Mexico debtors
in the name of X, retains a percentage for its services and turns over the
balance to X. The percentage retained by
Z is its fee for performing services in New Mexico. The fee is subject to the gross receipts tax.
It makes no difference that federal law prohibits Z from passing the cost of
the tax to the debtor by adding it to the amount to be collected. X's gross
receipts include the full amount collected by Z.
(3) Amounts received by collection
agencies from collecting accounts sold to the collection agency are not gross
receipts.
(4) Example 2: X, a cash basis taxpayer, sells its delinquent
accounts receivable to Z, a collection agency, for a percentage of the face
amount of the accounts. X's gross
receipts include the full amount of the receivables,
excluding any time-price differential. The
amount subsequently collected by Z from those accounts, however, is not subject
to gross receipts tax because the amount is not included within the definition
of gross receipts. In this situation Z is buying and selling intangible
property of a type not included within the definition of property in [Subsection
J of] Section 7-9-3 NMSA 1978.
P. Commissions of independent
contractors when another pays gross receipts tax on the receipts from the
underlying transaction. The following
regulations address independent contractors, including commissioned sales agents,
who are not consignees or marketplace providers.
(1) Commissions and other consideration
received by an independent contractor from performing a sales service in New
Mexico with respect to the tangible or intangible personal property of other
persons are gross receipts whether or not the other
person reports and pays gross receipts tax with respect to the receipts from
the sale of the property. This situation
involves two separate transactions. The
first is the sale of the property by its owner to the customer and the second
is the performance of a sales service by the independent contractor for the
owner of the property. The receipts from
the sale of the property are gross receipts of the person whose property was
sold. Receipts, whether in the form of
commissions or other remuneration, of the person performing a sales service in
New Mexico are gross receipts of the person performing the sales service.
(2) Example 1: S is a national purveyor of tangible personal
property. S has stores and employees in
New Mexico. S also has catalogue stores
in less populated parts of New Mexico. Catalogue
stores maintain minimal inventories; their primary purpose is to make S's
catalogues available to customers, to take orders of merchandise selected from
the catalogues, to place the orders with S and to provide general customer
service. The catalogue stores are
operated by independent contractors and not by S. S pays the contractors commissions based on
the orders placed. In charging its
customers, S charges the amount shown in the catalogue and does not add any
separate amount to cover the cost of the contractors' commissions. S pays gross receipts tax on its receipts from
the sale of catalogue merchandise. The
contractors contend that the cost of their selling services is included in the
amount S charges for its merchandise and so their commissions are not gross
receipts. The contention is erroneous. The contractors have receipts from performing
a service in New Mexico; it is immaterial that S paid the amount of gross
receipts tax S owed on S's receipts. See,
however, the deduction at Subsection B of Section 7-9-66 NMSA 1978.
(3) Example
2: M is a nationwide, multi-level sales
company with presence in New Mexico. M sells products to households mainly
through a network of individual, independent contractors. The network of sellers is controlled by one or
more sets of individuals, also independent contractors, who train and supervise
the individuals selling the merchandise; these supervisory contractors may also
sell merchandise. The sellers display,
promote and take orders for M's products. Payment for orders are
sent to M along with the orders. M ships
the merchandise directly to the final customers. M has agreed to, and does, pay the gross
receipts tax on the retail value of the merchandise sold, whether sold by M or
one of the independent contractors. Based
on the volume and value of merchandise sold, M pays both the selling and
supervisory independent contractors a commission. The commissions received by the independent
contractors engaging in business in New Mexico with respect to merchandise sold
in New Mexico are gross receipts subject to the gross receipts tax. The commissions are receipts from performing a
service in New Mexico. The fact that M
pays gross receipts tax on M's receipts from the sale of the property is
immaterial in determining the liability of the independent contractors.
(4) Commissions and other consideration
received by an independent contractor from performing a sales service in New
Mexico with respect to a service to be performed by other persons are gross
receipts whether or not the other person reports and
pays gross receipts tax with respect to the receipts from the performance of
the underlying service. This situation
involves two transactions. The first is
the performance of the underlying service by the other person for the customer
and the second is the performance of the sales service by the independent
contractor for the performer of the underlying service. The receipts from the performance of the
underlying service for the customer are gross receipts of the person performing
that service. Receipts, whether in the
form of commissions or other remuneration, of the person performing the sales
service are gross receipts of the person performing the sales service.
(5) Example 3: P is the publisher of a magazine published in
New Mexico. P enters
into arrangements with independent contractors to solicit ads to be
placed in P's publication. P pays each
contractor a percentage of the billings for the ads placed by the contractor as
a commission. The independent
contractors claim that they owe no gross receipts tax with respect to ads
solicited in New Mexico because P has paid gross receipts tax on P's
advertising revenues. The contractors
are incorrect. There are two transactions
in this situation, P's service of publishing advertisements and the
contractors' service of soliciting ads for P. The fact that P paid the amount of gross
receipts tax due on P's advertising revenues is immaterial regarding the
contractors' gross receipts tax obligations on their receipts.
(6) If the receipts from the underlying
sale of the tangible property are exempt or
deductible, the commission received by an independent contractor from selling
the tangible property of another may be subject to the deduction provided by
Section 7-9-66 NMSA 1978.
Q. Consignees and Marketplace Providers: Consignees and marketplace providers have
gross receipts from amounts collected by those persons for the sale, lease or
license of property or the sale of services to customers as defined under
Section 7-9-3.5, regardless of whether the consignee or marketplace provider is
obligated to pay the consignor or marketplace seller some part of the amounts
collected or whether the contract between the consignee and consignor or the
marketplace provider and marketplace seller calls for the consignor or
marketplace provider to perform certain services in conjunction with the sale,
lease or license of property or the sale of services to the customer. A consignee or marketplace provider will be considered to be selling a separate service for the
consignor or marketplace seller only if the contract requires the performance
of the service separate and apart from any sale, lease or license of property [of
stale] or sale of a service to the customer.
R. Receipts from winning contest:
(1) Receipts of a contestant from winning
purse money in a rodeo or an athletic game, match or tournament held in New
Mexico are gross receipts from performing services if any charge is made for
attending, observing or broadcasting the event. Such receipts are subject to the gross
receipts tax unless an exemption or deduction applies. Where the contestant is a team and there is an
agreement among the team members governing distribution of the purse money,
then only the amount received by each team member pursuant to the agreement is
gross receipts of the team member.
(2) Subsection R of 3.2.1.18 NMAC does
not apply to receipts exempt under Section 7-9-40 NMSA 1978 nor does it apply
to activities that are primarily or solely gambling.
[3.2.1.18 NMAC - Rp, 3.2.1.18 NMAC 10/13/2021; A, 2/25/2025]