TITLE 3: TAXATION
CHAPTER 2: GROSS
RECEIPTS TAXES
PART 1: GENERAL PROVISIONS
3.2.1.1 ISSUING AGENCY: Taxation and Revenue Department, Joseph M. Montoya Building, 1100 South St. Francis Drive, P.O. Box 630, Santa Fe NM 87504-0630.
[3.2.1.1 NMAC - Rp, 3.2.1.1 NMAC 10/13/2021]
3.2.1.2 SCOPE: This part applies to all persons engaging in business in New Mexico.
[3.2.1.2 NMAC - Rp, 3.2.1.2 NMAC 10/13/2021]
3.2.1.3 STATUTORY AUTHORITY: Section 9-11-6.2 NMSA 1978.
[3.2.1.3 NMAC - Rp, 3.2.1.3 NMAC 10/13/2021]
3.2.1.4 DURATION: Permanent.
[3.2.1.4 NMAC - Rp, 3.2.1.4 NMAC 10/13/2021]
3.2.1.5 EFFECTIVE DATE: October 13, 2021, unless a later date is cited at the end of a section, in which case the later date is the effective date.
[3.2.1.5 NMAC - Rp, 3.2.1.5 NMAC 10/13/2021]
3.2.1.6 OBJECTIVE: The objective of this part is to interpret, exemplify, implement and enforce the provisions of the Gross Receipts and Compensating Tax Act.
[3.2.1.6 NMAC - Rp, 3.2.1.6 NMAC 10/13/2021]
3.2.1.7 DEFINITIONS: The terms defined in 3.2.1.7 NMAC apply throughout 3.2 NMAC.
A. Benefit: A “benefit” is any consideration to either party. “Benefit” is not limited to profits, pecuniary gains, or any particular kind of advantage.
B. Consideration: “consideration” is any benefit, interest, gain or advantage to one party, usually the seller, or any detriment, forbearance, prejudice, inconvenience, disadvantage, loss of responsibility, act or service given, suffered, or undertaken by the other party, usually the buyer.
C. Detriment: A “detriment” is a forbearance of either party of a right which the party is entitled to exercise or any consideration flowing from either party, not limited to payment of money or transfer of property.
D. Digital good: A “digital good” means a digital product delivered electronically, including software, music, photography, video, reading material, an application and a ringtone. A digital good generally takes the form of a license to use and which property is stored, conveyed, and used in a digital or electronic format. Digital goods are generally intangible property for purposes of the Gross Receipts and Compensating Tax Act.
E. Financial corporations:
(1) A financial corporation is any corporation primarily dealing in moneyed capital and in substantial competition with commercial banks.
(2) Example 1: FC is a corporation which is primarily engaged in the following activities:
(a) buying and selling mortgages on real estate,
(b) initiating mortgages on real estate and selling these mortgages, and
(c) servicing mortgages. FC is a financial corporation because it is primarily dealing in moneyed capital and is in substantial competition with commercial banks.
(3) Example 2: IA is an insurance agency which, as an adjunct of its primary business, loans money to finance premiums. IA is not a financial corporation because it is not primarily dealing in moneyed capital and it is not in substantial competition with commercial banks.
(4) Example 3: A corporation which receives a commission on sales of money orders to its customers as an adjunct of its primary business is not a financial corporation within the meaning of Subsection C of Section 7-9-3 NMSA 1978 simply because it engages in this business activity.
(5) Example 4: A corporation which is engaged in the following activities is not a financial corporation because it is not primarily dealing in moneyed capital and is not in substantial competition with commercial banks:
(a) acting as an investment advisor to a mutual fund and others and receiving a fee for such services;
(b) acting as principal underwriter for the same mutual fund as in Paragraph (2) of Subsection E of 3.2.1.7 NMAC above and receiving a fixed percentage of the selling price of the securities sold as a commission or fee; or
(c) issuing a weekly stock analysis report as an advisory service, receiving for this service payment in the form of subscription fees.
F. Franchise:
(1) A "franchise" is an agreement in which the franchisee agrees to undertake certain business activities or to sell a particular type of product or service in accordance with methods and procedures prescribed by the franchisor, and the franchisor agrees to assist the franchisee through advertising, promotion and other advisory services. The franchise usually conveys to the franchisee a license to use the franchisor's trademark or trade name in the operation of the franchisee's business.
(2) Example: Y, a pie company of Cambridge, Massachusetts, grants to X of Virden, New Mexico, the right to make pies according to their exclusive recipe and to operate Y Pie shops throughout New Mexico. The right to make the pies and operate the pie shops, whether granted for a "one-time" payment or for a continuing percentage of the proceeds of the shops, is a franchise. Therefore, the receipts of Y, from its granting of the franchise are subject to gross receipts tax.
G. Computer-related terms:
(1) "Computer software" means computer programming in whatever form or medium.
(2) "Custom software" means computer programming developed specifically at the order of another or for a specific purpose. "Custom software" includes the modification of existing computer programming.
(3) "Packaged software" means computer programming embodied in electronic, electromagnetic or optical materials for transfer from one person to another, with or without explanatory materials, instructions or other programming and intended to be sold or licensed without modification to multiple buyers or users.
(5) "Software" means "computer software".
H. “Marketplace provider: A “marketplace provider” means a person who facilitates the sale, lease or license of tangible personal property or services or licenses for use of real property on a marketplace seller's behalf, or on the marketplace provider's own behalf. To “facilitate”, as that term is used here, means listing or advertising the sale, lease or license, by any means, whether physical or electronic, including by catalog, internet website or television or radio broadcast; and either directly or indirectly, through agreements or arrangements with third parties collecting payment from the customer and transmitting that payment to the seller, regardless of whether the marketplace provider receives compensation or other consideration in exchange for the marketplace provider's services. A marketplace provider also includes a person that has gross receipts as a marketplace provider under Section 7-9-3.5 NMSA 1978 from the sales of licenses, including digital goods.
I. Marketplace seller: A “marketplace seller” means a person who sells, leases or licenses tangible personal property or services or who licenses the use of real property through a marketplace provider. A marketplace seller also includes a seller that sells licenses through a marketplace provider.
J. Practitioner of the healing arts: A "practitioner of the healing arts" is a person licensed to practice in this state medicine, osteopathic medicine, acupuncture and oriental medicine, dentistry, podiatry, optometry, chiropractic, nursing or similar medical services for human beings. The term also includes veterinarians licensed to practice in this state.
K. Person engaged in the construction business: A "person engaged in the construction business" is a person who performs construction services as defined in Section 7-9-3.4 NMSA 1978.
[3.2.1.7 NMAC - Rp, 3.2.1.7 NMAC 10/13/2021]
3.2.1.8 CITATION OF REGULATIONS: Unless otherwise stated, all citations of statutes in Chapter 3.2 NMAC with respect to the Gross Receipts and Compensating Tax Act are to the New Mexico Statutes Annotated, 1978 (NMSA 1978).
[3.2.1.8 NMAC - Rp, 3.2.1.8 NMAC 10/13/2021]
3.2.1.9 [RESERVED]
3.2.1.10 [RESERVED]
3.2.1.11 CONSTRUCTION:
A. Construction service as distinguished from other services.
(1) The term "construction" is limited to the activities, or management of the activities, which are listed in Section 7-9-3.4 NMSA 1978 and which physically change the land or physically create, change or demolish a building, structure or other facility as part of a construction project.
(2) “Construction" does not include services that do not physically change the land or physically create, change or demolish a building, structure or other facility as part of a construction project, even though they may be related to a construction project. The fact that a service may be a necessary prerequisite or ancillary to construction or a construction project does not in itself make the service a construction service. Excluded from the meaning of "construction" are activities such as, but not limited to: hauling to or from the construction site, maintenance work, landscape upkeep, the repair of equipment or appliances, laboratory work or accounting, architectural, engineering, surveying, traffic safety or legal services. Some of these activities may qualify as construction-related services; see Section 7-9-52 NMSA 1978.
B. Construction includes: Pursuant to Section 7-9-3.4 NMSA 1978 the term "construction" includes the painting of structures, the installation of sprinkler systems and the building of irrigation pipelines.
C. Construction does not include:
(1) The term "construction" does not include the installation of carpets or the installation of draperies, but see 3.2.209.25 NMAC.
(2) The term “construction”, as defined in Section 7-9-3.4 NMSA 1978, does not include leasing or renting tangible personal property, such as construction equipment, with or without an operator but see Section 7-9-52.1 NMSA 1978 for transactions on or after January 1, 2013.
D. Oil and gas industry construction:
(1) "Construction", as this term is used in Section 7-9-3.4 NMSA 1978, includes the following activities related to the oil and gas industry:
(a) building and altering of gas compression plant facilities and pump stations, including: clearing of property sites; excavating for foundations; building and setting foundation forms; mixing, pouring, and finishing concrete foundations for buildings and plant equipment on foundations; fabricating and installing piping; installing electrical equipment, insulation, and instruments; erecting buildings; placing sidewalks, drives, parking areas; installing storage tanks; and dismantling equipment and reinstalling elsewhere;
(b) building of or extension of gas-gathering pipelines, including: connecting gathering lines to lease separators, fabricating and installing meter runs, digging trenches, beveling pipe, welding pipe, wrapping pipe, backfilling trenches, testing pipelines, fabricating and installing pipeline drips and installing conduit for pipelines crossing roads or railroads;
(c) building of or extension of product pipelines, including: building pressure-reducing stations; connecting pipelines to storage tanks, fabricating and installing valve assemblies, digging trenches, beveling pipe, welding pipe, wrapping pipe, laying pipe, backfilling trenches, testing pipelines and installing conduit for pipeline crossing roads or railroads;
(d) building secondary-recovery systems, including: excavating and building foundations, installing engines and water pumps, installing pipelines for water intake, installing pipelines for carrying pressured water to input wells, installing instruments and controls and erecting buildings;
(e) installing lease facilities, including: installing wellheads, flow lines, chemical injectors, separators, heater-treaters, tanks, stairways and walkways; building foundations; and setting pump units and engines, central power units and rod lines;
(f) demolishing pipelines, including: digging trenches to uncover pipelines, dismantling and removing drips and meter runs, backfilling trenches, tamping and smoothing right-of-way;
(g) increasing pipeline capacity, including: removing small pipelines and replacing with larger lines, and digging adjoining trenches and laying new pipelines;
(h) repairing plant, including: replacing tubing in atmospheric condensers, replacing plugged boiler tubing; removing cracked, broken or damaged portions of foundations and replacing anew; replacing compressors, compressor engines, or pumps; and regrouting and realigning compressors;
(i) drilling wells, including: drilling ratholes, excavating cellars and pits, casing crew services, cementing services, directional drilling, drill stem testing and fishing jobs in connection with drilling operations;
(j) general dirt work, including: building roads, paving with caliche or other surfacing materials; digging pits, trenches, and disposal ponds, building firewalls and foundation footing; and constructing pads from caliche or other materials.
(2) "Construction", as the term is used in Section 7-9-3.4 NMSA 1978, does not include the following activities related to the oil and gas industry:
(a) well servicing, including: acidizing and fracturing formations; pulling and rerunning rods or tubing; loading or unloading a well; shooting; scraping paraffin; steaming flow lines and tubing; inspecting equipment; fishing jobs, other than in connection with drilling operations; bailing cave-ins; reverse circulating and resetting packers;
(b) lease and plant maintenance, including: cleaning; weed-control; preventive care of machinery, pipelines, gathering systems, and engines; tank cleaning; testing of flow lines by pressure or X-ray means; cleaning lines and tubing by acid treatment or mechanical means, or replacing and restoring machinery components;
(c) transporting equipment, including: transporting drilling rigs, rigging-up and rigging-down, and hauling water and mud;
(d) salvaging of materials from a "production unit", as defined in the Oil and Gas Emergency School Tax Act, such as: killing the gas pressure, removing casing heads, welding pull nipples on the casing, cutting or shooting casing strings, pulling casings from the well bore, cementing to fill the abandoned well or plug the well, filling the cellar, and welding steel pipe markers;
(e) rental of equipment such as: power tongs, blowout preventors, tanks, pipe racks, core barrels, integral parts of a drilling rig or integral parts of a circulation unit, for transactions on or after January 1, 2013, see Section 7-9-52.1 NMSA 1978;
(f) measuring, "logging" and surveying services in connection with the drilling of an oil or gas well are construction-related services as of January 1, 2013, see Section 7-9-52 NMSA 1978. "Logging" as that term is used in this subsection is a method of testing or measuring an oil or gas well by recording various aspects of the geological formations penetrated by the well.
E. Construction includes prefabricated buildings; prefabricated versus modular buildings:
(1) The sale of prefabricated buildings, whether constructed from metal or other material, is the sale of construction. A prefabricated building is a building designed to be permanently affixed to land and manufactured (usually off-site) in components or sub-assemblies which are then assembled at the building site. Prefabricated buildings are not designed to be portable nor are they capable of being relocated.
(2) A portable building or a modular building is a building manufactured (usually off-site) which is designed to be moveable or is capable of being relocated and, when delivered to the installation site, generally requires only blocking, levelling and, in the case of modular buildings, joining of modules. For the purposes of Subsection F of 3.2.1.11 NMAC, neither portable buildings, modular buildings nor manufactured homes defined as vehicles by Section 66-1-4.11 NMSA 1978 are prefabricated buildings.
F. Construction materials and services; landscaping:
(1) Landscaping items, such as ornaments, rocks, trees, plants, shrubs, sod and seed, which are sold to a person engaged in the construction business, that are an integral part of the construction project, are construction materials. Persons who seed, lay sod or install landscape items in conjunction with a construction project are performing construction services.
(2) Receipts from selling landscaping items to, and from seeding, laying sod or installing landscape items for, persons engaged in the construction business may be deducted from gross receipts if the buyer delivers a nontaxable transaction certificate to the seller as provided in Section 7-9-51 and Section 7-9-52 NMSA 1978, respectively.
G. Nontaxable transaction certificates:
(1) Nontaxable transaction certificates are available from the department for persons who are engaged in the construction business and performing activities, as set forth in Sections 7-9-3.4, 7-9-52 and 7-9-52.1 NMSA 1978 to execute to providers of construction materials, construction services, construction-related services and lessors of construction equipment. See 3.2.201.11 NMAC for additional requirements on construction contractors to obtain nontaxable transaction certificates.
(2) Only persons who are licensed by the state of New Mexico as construction contractors may apply for and execute nontaxable transaction certificates under the provisions of Sections 7-9-51 NMSA 1978, 7-9-52 NMSA 1978, and 7-9-52.1 NMSA 1978, except that a person who performs construction activities as defined in Section 7-9-3.4 NMSA 1978 in the ordinary course of business, and who is exempt from the laws of the state of New Mexico requiring licensing as a contractor may apply for and execute such certificates.
H. Construction materials; general:
(1) The term "construction materials" means tangible personal property which is intended to become an ingredient or component part of a construction project.
(2) Tangible personal property intended ultimately to become an ingredient or component part of a construction project although not purchased for a specific project is nonetheless a construction material. Example: A government agency makes bulk purchases of asphalt which is stored by the agency for use in future road construction or repair projects. The asphalt is a construction material.
(3) Tools, equipment and other tangible personal property not designed or intended to become ingredients or component parts of a construction project are not construction materials if such materials accidentally become part of a construction project. Example: A workman accidentally drops a pair of gloves and a hammer into a form into which concrete is being poured. Because the gloves and the hammer are not intended to be included in the concrete structure, they are not construction materials.
[3.2.1.11 NMAC - Rp, 3.2.1.11 NMAC
10/13/2021]
3.2.1.12 ENGAGING IN BUSINESS:
(1) Generally: For periods beginning July 1, 2020, “engaging
in business” conforms to the constitutional requirement for substantial nexus
under South Dakota v. Wayfair, 585 U.S. ___(2018). A person that has physical presence in the
state and is also conducting activity with the purpose of direct or indirect
benefit is engaging in business and subject to the imposition of gross receipts
tax. A person that does not have
physical presence in the state is nevertheless engaging in business and has
substantial nexus in New Mexico if, in the preceding calendar year, that person
has total taxable gross receipts from sales, leases and licenses of tangible
personal property, sales of licenses and sales of services and licenses for use
of real property sourced to this state pursuant to Section 7-1-14 NMSA 1978, of
at least one hundred thousand dollars ($100,000).
(2) A person who is required to register with the department for the purposes of the gross receipts tax may close its gross receipts tax account following any calendar year in which it no longer meets the requirements for engaging in business set out in Section 7-9-3.3 NMSA 1978. For example, a person who does not currently have physical presence in New Mexico and who did not have total taxable gross receipts from sales, leases and licenses of tangible personal property, sales of licenses and sales of services and licenses for use of real property sourced to this state pursuant to Section 7-1-14 NMSA 1978 of at least $100,000, may close its gross receipts tax account for the 20XX calendar year. In order to close its registration and its future filing obligations, such person must submit its request to close its registration and specify the closure date on a form prescribed by the department. The person’s duty to register will resume in any calendar year in which it meets the requirements of Section 7-9-3.3 NMSA 1978.
(3) A person who has not registered or been otherwise identified is nonetheless a “taxpayer” subject to the provisions of the Tax Administration Act, 3.1.1.13 NMAC.
B. Affiliated corporations:
(1) When a corporation is carrying on or causing to be carried on, with a wholly owned subsidiary, any activity with the purpose of direct or indirect benefit, both the corporation and the subsidiary are "engaging in business".
(2) Example: B corporation, which operates a hotel supply house, sells supplies only to C Hotel Corporation, which owns all the stock in B Corporation. B claims that since it sells only to C, its parent corporation, it is not engaging in business. B and C are each engaging in business because the purpose of their activities is to benefit either or both corporations.
C. Corporation not for profit: When a corporation not for profit is carrying on or is causing to be carried on any activity with the purpose of direct or indirect benefit it is "engaging in business".
D. Leasing property:
(1) Persons leasing property employed in New Mexico are engaging in business within the state for the purpose of direct or indirect benefit.
(2) Example: X, an out of state business, leases construction machinery to Y who employs the leased property in New Mexico. X asks if X is engaged in business in New Mexico for purpose of registration, reporting and paying the gross receipts tax. X is engaged in business in New Mexico.
E. Hotels and motels providing interstate telecommunications service to guests:
(1) Hotels, motels and similar establishments offering interstate telecommunications service to guests in conjunction with the rental of rooms or other facilities are not "engaging in interstate telecommunications business" for purposes of the Interstate Telecommunications Gross Receipts Tax Act.
(2) A hotel, motel or similar establishment is primarily engaged in the business of renting rooms and meeting facilities to the general public. Providing interstate telephone service or other interstate telecommunications services to guests is incidental to the primary business of the hotel, motel or similar establishment. Receipts from providing such service are additional receipts from engaging in the primary business and are subject to the provisions of the Gross Receipts and Compensating Tax Act.
(3) Subsection D of 3.2.1.12 NMAC is retroactively applicable to transactions occurring on or after July 1, 1992.
F. Persons not engaging in business - foster parents: Individuals who enter into an agreement with the state of New Mexico to provide foster family care for children placed with them by the state are not thereby engaging in business. Receipts of the individuals from providing foster care pursuant to such an agreement are not receipts from engaging in business.
G. Persons not engaging in business - certain caretakers: Individuals who enter into an agreement with the state of New Mexico to provide non-medical personal care and housekeeping assistance to low income disabled adults pursuant to the critical in home care program are not thereby engaging in business. Receipts of the individuals from such caretaking activities are not receipts from engaging in business.
H. Persons not engaging in business - home care for developmentally disabled family members: Any individual who enters into an agreement with the state of New Mexico to provide home based support services for developmentally disabled individuals in the home of the developmentally disabled individuals or the home of the support provider and receives payments which under 26 USCA 131 are "qualified foster care payments" is not thereby engaging in business. Receipts of the individuals which are "qualified foster care payments" from providing such home based support services pursuant to such an agreement are not receipts from engaging in business.
I. Owner engaged in business when selling to an owned entity:
(1) Except as provided in Paragraph (2) of this Subsection, when an owner of an entity sells property in New Mexico to, leases property employed in New Mexico to, or performs services in New Mexico for the entity or other owners of the entity, the owner is engaging in business in New Mexico except when the transaction may be characterized for federal income tax purposes as a contribution of capital.
(2) When a partner or interest holder in an entity taxed as a partnership is allocated profits or receives a guaranteed payment or other distributions for activities undertaken as a partner on behalf of the partnership such as administrative services done solely for the benefit of the partnership or for activities for third -parties transacting business with the partnership, the partner is not engaging in business separately from the partnership and the allocations, payments, or distributions are not gross receipts. A partner may, however engage in business separately from the partnership and any transactions between that partner and the partnership, where the partner is not acting as a partner on behalf of the partnership, constitute gross receipts from engaging in business. Indicia that a partner is not acting as a partner on behalf of the partnership may include:
(a) that the partner engages in similar transactions with third parties other than the partnership; or
(b) that the allocation, payment, or distribution made by the partnership is not made under the partnership agreement; or
(c) that the partner's transaction(s) with the partnership involve the sale or lease of goods or the sale of services not provided by the partnership to third parties.
(3) For the purposes of Subsection H of 3.2.1.12 NMAC, an "entity" means any business organization or association other than a sole proprietorship.
J. Persons not engaging in business - sale or exchange of renewable-fueled electricity generated from a system installed in a personal residence. Any individual who sells or transfers electricity to an entity engaged in the business of selling electricity, for which the individual receives monetary compensation or credit against a future month's electricity use, is not engaged in business if the electricity is generated from a renewable-fueled system installed in a personal residence.
[3.2.1.12 NMAC - Rp, 3.2.1.12 NMAC 10/13/2021; A, 12/19/2023]
3.2.1.13 [RESERVED]
3.2.1.14 GROSS
RECEIPTS - GENERAL:
A. Credit card sales: Gross receipts of the seller of property or services or the lessor of property include the full sale or lease contract amount of any property or service sold or of any property leased when payment is made through the use of a credit card which has been issued by a third party. The seller or lessor may not deduct from gross receipts the amount charged by the credit card company for converting the account into cash.
B. Consideration other than money:
(1) If the consideration received by the seller or lessor for the item sold or leased or for the service performed is in a form other than money, the fair market value of the consideration received or the fair market value of the item sold or of the lease or of the service performed must be included in gross receipts. The value of the consideration received or the item sold or of the lease or of the service performed is the fair market value at the time of the transaction.
(2) Example 1: X has Y, a garage owner, repair X's automobile. In exchange for the service performed by Y, X gives Y a deer rifle. The fair market value of the rifle at the time of the transaction is the measure of Y's gross receipts.
(3) Example 2: X, a New Mexico construction company, contracts with Y Electric Co-op Association for the construction of transmission lines. The contract requires X to furnish all materials and labor for a fixed price; however, it permits a reduction of the contract price in the amount of the value of materials furnished by Y. The gross receipts of X include the value of any material supplied by the cooperative.
(4) Example 3: X is a firm engaged in the construction business in New Mexico. The receipts of X from the sale of a completed construction project include the value of construction services performed by the buyer of the construction project pursuant to a “sweat labor contract” if the performance of services are required to fulfill a contractual obligation of X. A “sweat labor contract”, as used in this example, is a contract whereby the buyer of a completed construction project agrees to perform certain construction services for the seller of the construction project as partial payment of the sale price of the construction project.
(5) Example 4: M agrees to drill an oil well for the XYZ Oil Company. The contract provides that M will drill the well for $7.50 per foot and a one-eighth interest in the minerals which belong to XYZ. The well, when completed, produces forty barrels of oil per day for a period which is expected to last for 10 years. M admits that the $7.50 per foot that is received from drilling the well are gross receipts subject to the gross receipts tax. M questions whether the value of the one-eighth interest is gross receipts. The value of the mineral interest is consideration and must be included in M's gross receipts. It will be valued at its fair market value at the time the well is completed.
(6) Example 5: The A Oil Company hires the B Drilling Company to drill a well on its property. A furnishes drill bits to B, but A has the right to deduct the rental value of the bits from the total footage or day rate price it agrees to pay B for the drilling. The use of the drill bits is partial consideration, furnished by A, for the performance of the drilling service by B and the reasonable value of their use must be included in B's gross receipts. A also must include the rental value of the bits in its gross receipts because it is leasing the drill bits to B. However, if A furnishes drill bits to B and does not have the right to deduct the rental value of the bits from the total footage or day rate price which it has agreed to pay B for the drilling, then no amounts from the drill bit transaction are includable in either A's or B's gross receipts. The same applies if B furnishes the drill bits.
C. Consideration less than fair market value:
(1) In a transaction where the actual consideration received does not represent the fair market value of the property sold or leased or of the service sold, the fair market value shall be included in the gross receipts of the seller or lessor. Fair market value is the value which the property or service can command in an arms length transaction between two independent parties in an open market.
(2) The following example illustrates the application of Section 7-9-3.5 NMSA 1978 with respect to consideration less than fair market value. Example: X, a land and cattle company, is a corporation which is affiliated with Y, an equipment company. Because of their affiliation, X leases a $30,000 tractor from Y for $l.00 a month. Y reports that its gross receipts from this transaction are $l.00. Y's gross receipts are the market value of a monthly lease of a $30,000 tractor. Y must pay gross receipts tax on the adjusted amount.
D. Sale of commercial paper:
(1) The full sale or leasing contract amount of property or service sold, excluding any type of time price differential, is included in the seller's gross receipts even though the seller subsequently sells the contract and does not receive the total contract price in money. No deduction is allowed for discounts suffered from the sale of commercial paper arising from a sale or lease.
(2) Example: X sells a washing machine to Y under a conditional sales contract in which the full sale contract amount, excluding time price differential, is $120. The principal on the washing machine is to be paid for over a twelve month period at $10 a month. X collects $20 of principal under the contract and then assigns its rights to W for $90. Depending upon the method regularly used for reporting gross receipts, X would either pay tax on the full contract amount for the month in which the sale was made (accrual basis) or pay tax measured by the receipts as they were received (cash basis). If X had elected to pay tax measured by its receipts as they were received, X would have reported $20 during the first two months from this transaction. When X assigned the contract, X would have to include $100 in the gross receipts for the third month since a deduction is not allowed for a discount suffered upon the transfer of a conditional sales contract.
E. Interdepartmental transfers:
(1) Receipts derived from an interdepartmental transfer of services or property are not subject to the gross receipts tax. To qualify as an interdepartmental transfer, the transfer must be a transfer of services or property within the same corporation or other taxable entity.
(2) Example: C, a company located in New Mexico, operates both an electric utility and a water utility. C records on its books the sale of the electricity to the water utility in order to comply with the public service commission regulations but does not thereby incur gross receipts as that term is used in the Gross Receipts and Compensating Tax Act. Such book entries do not record receipts from selling property in New Mexico but record interdepartmental transfers. However, the value of the electricity at the time of its conversion to use by the water utility is subject to the compensating tax.
F. Service charges computed on balances:
(1) Service charges on accounts receivable balances or installment sales contracts which are not computed at the time of sale, are time-price differential charges, are not subject to the gross receipts tax and are not to be included in the sales price of an item brought into New Mexico for the purpose of computing the compensating tax.
(2) Example: X corporation located outside New Mexico is engaged in the business of publishing books. X has several nonemployee salesmen soliciting orders on a commission basis in New Mexico. Every such order is forwarded to X's main office where it is reviewed and then either accepted or rejected. Accepted orders are shipped directly to the purchaser from X's binderies located outside of New Mexico. Since X has salesmen in New Mexico, it is an agent for collection of the compensating tax, pursuant to Section 7 9 10 NMSA 1978. The purchaser may elect to pay for the books on an installment basis. If after 90 days from purchase, the balance has not been paid, a one percent per month service charge is added to the balance. This charge is not precomputed and no portion thereof is due unless the purchaser elects to pay on an installment plan extending over 90 days. Such a charge is a time-price differential and is not a part of the sales price of the item. Therefore, it should not be included in the sales price when considering the amount of compensating tax that should be paid over to the state of New Mexico.
G. Corporations and organizations not organized for profit - fund raising activities:
(1) Receipts of a corporation or organization not organized for profit, other than an organization granted a 501(c)(3) determination by the internal revenue service, derived from fund raising activities which are in the nature of donations, gifts, and contributions are not subject to the gross receipts tax.
(2) The department will presume that the total receipts of such a nonprofit organization from a fund raising activity are receipts derived from a taxable activity if the project involves the performance of any service or the sale or lease of any property by the organization. This presumption may be overcome by establishing the following:
(a) the purchaser or lessee of the property or service intended by the purchase or lease to make a gift, donation, or contribution to the organization; and
(b) the purchase or lease price clearly exceeded the fair market value of the service or property or the fair rental value of the property.
(3) If these conditions are satisfied, the amount of consideration received by the organization in excess of the fair market price or fair rental value is not subject to the gross receipts tax.
H. Discount coupons: The gross receipts attributable to a sale in which a seller accepts discount coupons provided by buyers are measured by the cash received plus the value of the coupon. However, if the discount coupon is not redeemable by the seller, the acceptance of the coupon constitutes a cash discount allowed and taken and is excluded from gross receipts.
I. Gross receipts embezzled: Receipts that have been embezzled or lost through bookkeeping errors are not a cash discount allowed and taken; such receipts are not deductible under Section 7 9 67 NMSA 1978 because they are not a refund, allowance or uncollectible debt.
J. Vending machines:
(1) A vending machine is a device that, when the appropriate payment has been inserted into it, whether payment is made by coins, tokens, paper money, credit card, debit card or other means, dispenses tangible personal property, performs a service (including entertainment) or dispenses tickets, tokens or similar objects redeemable for money, tangible personal property or services; but “vending machine” does not include any device which is designed to primarily or solely to play a game of chance, such as slot machines, video gaming machines and the like.
(2) Amounts received from allowing the vending machine to be placed in a location as well as amounts received from use of or sales from vending machines are gross receipts and are subject to the gross receipts tax. The vending machine owner is responsible for reporting the receipts and paying the gross receipts tax.
(3) Receipts derived from allowing vending machines to be placed in a location not owned or rented by the vending machine owner are gross receipts and are subject to the gross receipts tax. Except as provided otherwise in Subsection K of Section 3.2.1.14 NMAC, the person receiving the receipts is responsible for reporting the receipts and paying the gross receipts tax with respect to such receipts.
(4) If the vending machine owner and a person controlling the premises where the machine is located enter into a written agreement similar to the one below, the department will presume that a joint venture has been created, that the joint venture is registered with the department and that the vending machine owner has agreed to pay all gross receipts tax due with respect to the joint venture. In such a case, the person owning the machine, on behalf of the joint venture, will report and pay the gross receipts tax due on all the receipts derived from either allowing the vending machine to be placed in a location or sales from the vending machine for all parties in the joint venture and the person controlling the premises is relieved of the duty to report or pay gross receipts tax on those same receipts.
(5) Agreement: Total amounts collected from the vending machine shall be allocated between the vending machine owner and the person controlling the location. The vending machine owner will receive a percentage of the amounts collected net of gross receipts tax due, plus an amount equal to the gross receipts tax payable on the entire proceeds from the vending machine. The person controlling the location will receive a percentage of the amounts collected net of gross receipts tax due. The vending machine owner will report and pay any gross receipts tax due on all the receipts derived from either the use of or sales from the vending machine.
(6) In the event that no such agreement exists, the department will presume that no joint venture exists. In such a case, the vending machine owner will be subject to gross receipts tax on the entire amounts collected from the use of or sales from the vending machine, and the person controlling the premises will be subject to gross receipts tax on the amount that person receives from the vending machine owner for allowing the placement of the machine on the premises.
(7) In the event the vending machines are leased to the person who services them, the term “vending machine owner” means the lessee of the vending machines.
K. “Gross receipts” excludes leased vehicle surcharge: For the purposes of Subparagraph (b) of Paragraph (3) of Subsection A of Section 7-9-3.5 NMSA 1978, the term “leased vehicle gross receipts tax” includes the leased vehicle surcharge. The amount of any leased vehicle surcharge may be excluded from gross receipts.
L. Receipts from furnishing parts or labor under automotive service contract:
(1) When an automobile dealer, who is the promisor under an automotive service contract as that term is defined under Subsection C of Section 3.2.1.16 NMAC, furnishes parts or labor or both to satisfy the promisor's obligation to repair the breakdown involving a part specified in the contract, the dealer has taxable gross receipts equal to the retail value of the parts and labor furnished. A transfer of property or performance of service for a consideration has occurred and therefore a receipt from selling property or performing services has been realized by the dealer.
(2) The consideration received by the dealer is the discharge of the dealer's obligation to make the repair which obligation arose when the covered breakdown occurred.
(3) Receipts of a repair facility, including an automobile dealer, from furnishing parts and labor to fulfill the obligation of another person under an automotive service contract are gross receipts and not deductible under Sections 7 9 47 and 7 9 48 NMSA 1978, even though the seller has received NTTCs for other transactions.
M. Receipts from deductibles/co-payments under automotive service contracts: The receipts of a New Mexico automotive dealer or other repair facility, including the promisor under an automotive service contract, from the “deductible” or “co-payment” amount paid by a customer as required by automotive service contract as that term is defined in Subsection C of Section 3.2.1.16 NMAC in connection with the provision of repair services under contract are gross receipts.
N. Receipts of dealer from own reserve:
(1) The receipts of a New Mexico auto dealer for repairs provided by the dealer under an automotive service contract as that term is defined in Subsection C of Section 3.2.1.16 NMAC, on which the dealer is obligated as promisor are not gross receipts if:
(a) the receipts are paid from a reserve account established by the dealer under an agreement with an auto service contract administrator or an insurance company, or both, and
(b) the dealer is entitled to a return of any amounts in the reserve account not used to pay for parts and labor or to pay other charges against the dealer in connection with the auto service contract.
(2) In this situation, the dealer is being “paid” from the dealer's own funds and has no receipts. However, the dealer as promisor is liable for gross receipts tax on the retail value of the parts or labor or both furnished to discharge the dealer's obligation.
O. Water conservation fee: Section 74-1-13 NMSA 1978 imposes the water conservation fee on the operator of a public water supply system. The fee is measured by the amount of water produced. The operator is not authorized to impose the water conservation fee on the operator's customers. If the operator of the system separately bills an amount characterized as a reimbursement of the water conservation fee to the operator's customers, the separately stated amount is simply an element of the price of the water sold and the “reimbursement” is included in gross receipts. The definition of “gross receipts” does not exclude the water conservation fee or amounts characterized as reimbursements of water conservation fee paid.
P. Sales of items subject to the federal manufacturer’s excise tax:
(1) The gross receipts from sales of items such as motor vehicle tires include the total amount of money or the value of other consideration received even though this amount includes the Federal Manufacturer's Excise Tax, 26 U.S.C.A. Section 4061 et seq., (1986) which is separately stated on the invoice. Gross receipts do not include the amount of money attributable to the Federal Communications Excise Tax, 26 U.S.C.A. Section 4251, et seq., (1986), and the Federal Air Transportation Excise Tax, 26 U.S.C.A. Section 4261 et seq., (1986), which are user's taxes.
(2) Example: A tire dealer sells a tire in New Mexico to a retail customer for $40.00 and separately states $l.00 for Federal Manufacturer's Excise Tax on the sales ticket. The seller's gross receipts for this transaction are $41.00.
Q. Transactions among related persons are gross receipts
(1) Each person engaging in business in New Mexico is subject to the provisions of the Gross Receipts and Compensating Tax Act. Each person who is a member of any group of related or affiliated persons and who engages in business in New Mexico is a taxpayer. The provisions of the Gross Receipts and Compensating Tax Act apply to the transactions between that taxpayer and all other persons, including the other related or affiliated persons, even though consideration is not received in the form of cash or other monetary remuneration.
(2) Example 1: A cooperative association and X both engage in business in New Mexico. The cooperative sells services to X, one of its members. The cooperative is a taxpayer and the receipts from this transaction are subject to the provisions of the Gross Receipts and Compensating Tax Act.
(3) Example 2: Both X and a cooperative association engage in business in New Mexico. X is a member of the cooperative and sells services to it. X is a taxpayer and the receipts from this transaction are subject to the provisions of the Gross Receipts and Compensating Tax Act.
(4) Example 3: X engages in business in New Mexico, specifically by selling office supplies. X is also a partner in a partnership. Sales by X to the partnership are subject to the provisions of the Gross Receipts and Compensating Tax Act.
(5) Example 4: C is a corporation engaging in business in New Mexico. S, an individual who is the majority stockholder in C, buys in New Mexico services and goods from C. C's receipts from these transactions with S are subject to the provisions of the Gross Receipts and Compensating Tax Act.
(6) Example 5: C and S are corporations engaging in business in New Mexico. S is a wholly-owned subsidiary of C. C sells tangible personal property in New Mexico to S. C's receipts from the transaction are subject to the provisions of the Gross Receipts and Compensating Tax Act.
(7) Example 6: X and Y are both divisions of corporation Z. X and Y are both parts of the same person, Z, and are not “related persons”. Receipts from transactions between these two divisions are activities within Z and do not constitute gross receipts.
(8) Example 7: P, an individual, operates two businesses as sole proprietorships. One of P's businesses transfers tangible personal property to the other. Since both businesses and P are the same person, they are not “related persons” and the transaction does not constitute gross receipts.
R. Owner’s receipts from transactions with owned entity are gross receipts
(1) Except as provided in Paragraph (2) of this Subsection, when a person who owns all or part of an entity has receipts from the sale of property in New Mexico to, the lease of property employed in New Mexico to or the performance of services in New Mexico for the entity, the person’s receipts are gross receipts except when the transaction may be characterized for federal income tax purposes as a contribution of capital. The person’s receipts include the actual amount of money received by the person plus the value of any additional consideration. Additional consideration includes forbearance of charges against the person’s ownership interest. These gross receipts are subject to the gross receipts tax unless an exemption or deduction applies.
(2) When a partner or interest holder in an entity is allocated profits or receives a guaranteed payment or other distributions for activities undertaken as a partner on behalf of the partnership such as administrative services done solely for the benefit of the partnership or for activities for third-parties transacting business with the partnership, these receipts of the partner are not gross receipts and are not subject to the gross receipts tax. When a partner engages in business separately from the partnership any transactions of that partner with the partnership, where the partner is not acting as a partner on behalf of the partnership, are gross receipts. Indicia that a partner is not acting as a partner on behalf of the partnership may include:
(a) that the partner engages in similar transactions with third parties other than the partnership;
(b) that the allocation, payment, or distribution made by the partnership is not made under the partnership agreement;
(c) that the partner’s transaction(s) with the partnership involve the sale or lease of goods or the sale of services not provided by the partnership to third parties.
(3) For the purposes of Subsection S of Section 3.2.1.14 NMAC, an “entity” means any business organization or association other than a sole proprietorship.
(4) Example: C is a corporation and S is C’s wholly owned subsidiary corporation. C and S create L, a limited liability company; C and S each own fifty percent of L. L purchases a twenty percent interest in P, a limited partnership. C sells goods to P. P pays the amount charged. C has gross receipts from this transaction equal to the amount received for the goods.
[3.2.1.14 NMAC - Rp, 3.2.1.14 NMAC 10/13/2021]
3.2.1.15 GROSS RECEIPTS; TANGIBLE PERSONAL PROPERTY:
A. Lease purchase agreement as a sale: The receipts from a two party “lease-purchase” or “paid-out lease” agreement for tangible personal property will be treated as receipts from the sale of tangible personal property under the Gross Receipts and Compensating Tax Act if the lessee-buyer treats the property as an asset and depreciates the property pursuant to generally accepted accounting practices.
B. Consignment sales: Receipts of both a consignor and a consignee from the sale of tangible personal property handled on consignment are subject to the gross receipts tax.
C. Delivery expenses:
(1) Receipts from charges by a seller of tangible personal property for delivery costs, including postage and transportation charges, paid by the seller and passed on to the buyer, are an element of the sales price of the property.
(2) Example: X sells tangible personal property in the state of New Mexico and transports property to buyers located in New Mexico in its own equipment from its factory and warehouse. In some instances the contracts of sale which X has with its buyers stipulate that title passes on completion of manufacturing; in other cases there is no stipulation regarding passage of title. On its billing to buyers, X separately states amounts categorized as "warehouse charges" and "delivery charges". These separately stated charges are elements of the sale price of the property.
D. Freight charges:
(1) Transportation costs that are paid by the seller to the carrier are an element of the sales price of the property.
(2) Transportation costs that are paid to the carrier by the buyer are not an element of the sales price of the property. If the buyer transports the property with the buyer's own equipment, the cost of the transportation does not increase the value of the property.
(3) If the seller transports the property with its own equipment, and the cost of the transportation is already included in the price of the property, it is considered as an element of the sales price of the property. If extra separate charges are made, receipts from such charges are gross receipts.
E. Refundable deposits: Amounts received in the form of refundable deposits on bottles, cartons, cases and the like are to be included in gross receipts of the seller or lessor and are subject to the gross receipts tax.
F. Buyer's financing costs: In a situation where:
(1) a lending institution lends money directly to a buyer of tangible personal property;
(2) the buyer executes a promissory or installment note together with a security agreement or a retail financing agreement directly to the lending institution;
(3) neither the note nor the agreement is endorsed or guaranteed in any manner by the seller of the property; and
(4) the lending institution as agent for the buyer, pays the seller by crediting the account of the seller with an amount equal to the loan against the property, with no amount added or later rebated, the receipts of the seller from the sale of the property include any down payment and the amount credited to the account of the seller unless that amount is less than the fair market value of the property sold, in which case the fair market value would be the measure of the seller's gross receipts.
G. Sale of items subject to the state Cigarette Tax Act: The gross receipts from sales of cigarettes include the total amount of money or the value of other consideration received even though this amount includes the excise tax levied by the Cigarette Tax Act.
H. Florist receipts: Receipts of a New Mexico florist are gross receipts when the florist:
(1) receives an order and payment for flowers under an agreement that the flowers are to be delivered at another location by another florist; and
(2) uses long distance communication to authorize the other florist to make delivery; and
(3) pays the other florist for the flowers.
I. Sale of food and beverage at horse racetracks: Receipts from the sale of food and beverage either by a concessionaire or the owner of a New Mexico horse racetrack, including the track at the state fair grounds, are subject to the gross receipts tax. If a concessionaire pays a racetrack owner a consideration for operating a food and beverage concession, the racetrack owner's receipts are subject to the gross receipts tax.
J. Packaged software:
(1) The transaction constitutes a sale of tangible personal property or a digital good, as defined by 3.2.1.7 NMAC when a person sells a packaged software where:
(a) no extraordinary services are performed in order to furnish the packaged software; and
(b) the buyer pays a fixed amount for the packaged software and the license to use the software; and
(c) the buyer is allowed to resell the license to use the software with the packaged software itself.
(2) Sale of such property for resale is subject to the deduction provided in Section 7-9-47 NMSA 1978.
(3) This version of Subsection J of Section 3.2.1.15 NMAC is retroactively applicable to transactions occurring on or after July 1, 1991.
K. Sale of postage stamps:
(1) Receipts in excess of the face value of the postage stamps from reselling un-canceled postage stamps issued by the United States postal service or any foreign government are gross receipts. Receipts in excess of the face value of the postage from imprinting, mechanically or by other means, the amount of postage on documents to be mailed are gross receipts.
(2) Receipts from selling canceled postage stamps issued by the United States postal service or any foreign government are gross receipts.
L. Refined metals: The receipts of a person who sells refined metals in New Mexico are gross receipts subject to the gross receipts tax regardless of whether the seller is a severer or processor as defined in the Resources Excise Tax Act or the Severance Tax Act.
[3.2.1.15 NMAC - Rp, 3.2.1.15 NMAC 10/13/2021]
3.2.1.16 GROSS RECEIPTS - REAL ESTATE AND INTANGIBLE PROPERTY:
A. Insurance proceeds:
(1) Receipts of an insured derived from payments made by an insurer pursuant to an insurance policy are not subject to the gross receipts tax. Such receipts are not receipts derived from the sale of property in New Mexico, the leasing of property employed in New Mexico, or the performance of a service.
(2) Example: ABC is an auto dealer in the business of selling new and used cars. In addition to selling cars, ABC also maintains a service garage with a large inventory of automobile parts. As part of its regular sales practice, ABC allows potential purchasers to test drive the cars. ABC carries automobile insurance which is applicable in the situation where the potential purchaser is test driving the car. When an accident occurs, even though some or all the parts used to repair the automobile are taken from ABC's inventory of parts and ABC does the actual repair work, payment received from the insurance company for the damaged automobile is not gross receipts. Such a payment is not received as consideration for selling property in New Mexico, leasing property employed in New Mexico, or for performing services. ABC is not liable for compensating tax on the value of the parts used or the labor.
B. Receipts from sale of automotive service contracts:
(1) “Automotive service contract” means an undertaking, promise or obligation of the promisor, for a consideration separate from the sale price of a motor vehicle, to furnish or to pay for parts and labor to repair specified parts of the covered motor vehicle only if breakdowns (failures) of those specified parts occur within certain time or mileage limits. The promisor's obligation is conditioned upon regular maintenance of the motor vehicle by the purchaser of the automotive service contract at the purchaser's expense. The automotive service contract may also obligate the promisor to reimburse the purchaser for certain breakdown related rental and towing charges. The automotive service contract may require the payment of a specified “deductible” or “co-payment” by the purchaser in connection with each repair.
(2) The receipts of a person from selling an automotive service contract are not gross receipts. The undertaking, promise or obligation of the promisor under the automotive service contract to pay for or to furnish parts and service if an uncertain future event (breakdown) occurs is not within the definition of property under Subsection J of Section 7-9-3 NMSA 1978. Since the receipts from selling an automotive service contract do not arise “from selling property in New Mexico, from leasing property employed in New Mexico or from performing services in New Mexico”, the receipts are not gross receipts as defined in Section 7-9-3.5 NMSA 1978 and are not subject to the tax imposed by Section 7-9-4 NMSA 1978.
(3) The furnishing by the promisor of parts or labor or both to fulfill the promisor's obligation when a breakdown occurs is a taxable event.
C. Receipts from insurance company under an automotive service contract program: The receipts of a New Mexico automotive dealer from an insurance company are not taxable gross receipts if the payments by the insurance company are to reimburse the dealer, who is promisor under an automotive service contract as that term is defined in Subsection C of 3.2.1.16 NMAC, for all parts and labor furnished by the dealer under the contract or for parts and labor furnished by the dealer under the contract in an amount in excess of a specified reserve established by the dealer under an agreement with the insurance company. The receipt of the payments from the insurance company are not receipts from the sale of parts and labor but are payments to indemnify the dealer for the dealer's expense in fulfilling the dealer's obligation. The value of parts and labor furnished to make the repairs was subject to the gross receipts tax when the parts and labor were furnished to discharge the dealer's obligation as the promisor under the automotive service contracts.
D. Gift certificates:
(1) Receipts from the sale of gift certificates are receipts from the sale of intangible personal property of a type not included in the definition of “property” and, therefore, are not gross receipts.
(2) When a gift certificate is redeemed for merchandise, services or leasing, the person accepting the gift certificate in payment receives consideration, which is gross receipts subject to the gross receipts tax unless an exemption or deduction applies. The value of the consideration is the face value of the gift certificate.
(3) When a gift certificate is purchased during the time period set out in Laws 2005, Chapter 104, Section 25 subsequent redemption of the gift certificate for the purchase of qualified tangible personal property after that period is not deductible under Laws 2005, Chapter 104, Section 25.
(4) When a gift certificate is redeemed during the time period set out in Laws 2005, Chapter 104, Section 25 for the purchase of qualified tangible personal property, the receipts from the sale are deductible under Laws 2005, Chapter 104, Section 25.
E. Merchant discount and interchange rate fee receipts: Bank receipts derived from credit and debit card merchant discounts and bank interchange rate fees are not gross receipts within the meaning of the Gross Receipts and Compensating Tax Act and therefore are not taxable.
F. Prepaid telephone cards - “calling cards”:
(1) Receipts from the sale of an unexpired prepaid telephone card, sometimes known as a “calling card”, are receipts from the sale of a license to use the telecommunications system and, therefore, are gross receipts and are not interstate telecommunications gross receipts. Receipts from selling an expired prepaid telephone card are receipts from the sale of tangible personal property and are gross receipts and are not interstate telecommunications gross receipts.
(2) Receipts from recharging a rechargeable prepaid telephone card are receipts from the sale of a license to use the telecommunications system and are gross receipts and are not interstate telecommunications gross receipts.
(3) Subsection F of 3.2.1.16 NMAC is retroactively applicable to transactions and receipts on or after September 1, 1998.
[3.2.1.16 NMAC - Rp, 3.2.1.16 NMAC 10/13/2021]
3.2.1.17 GROSS RECEIPTS - LEASING:
A. Leasing of property employed in New Mexico:
(1) Receipts derived from the rental or leasing of property employed in New Mexico are subject to the gross receipts tax.
(2) Example 1: A is in the business of leasing heavy equipment used in construction projects. The receipts from the leasing of such equipment employed in New Mexico prior to January 1, 2013, are subject to the gross receipts tax. See Section 7-9-52.1 NMSA 1978 for deductibility of receipts from such leases on or after January 1, 2013.
(3) Example 2: Y, a New York corporation, leases four block‑making machines to X who uses the machines in X's block making business in New Mexico. The rental contract is signed in Nebraska. The receipts which Y receives from the rental of the equipment employed in New Mexico are taxable.
(4) Example 3: P corporation leases photocopying machines to Q, a state agency. The receipts of P corporation from leasing these machines to the state agency are subject to the gross receipts tax.
B. Additional charges:
(1) Receipts derived from additional charges made in conjunction with the rental or leasing of property employed in New Mexico are subject to the gross receipts tax.
(2) Example 1: C owns and operates a business which leases gas cylinders. There is a clause in the lease whereby the lessee will be liable for an additional charge if the gas cylinders are kept past a specific date provided in the lease contract. Receipts from these penalties or demurrage charges for keeping the gas cylinders past the specified date provided are receipts from leasing property employed in New Mexico and are subject to the gross receipts tax.
(3) Example 2: D is in the business of leasing concrete forms which are employed in New Mexico. The terms of the lease agreement require that the property leased be returned to the lessor in the condition in which it was leased. Any receipts from charges for repairing and cleaning concrete forms returned to the lessor in a damaged condition, for any material used in repair of such forms, or from charges for the purchase price of forms which are not returned to the lessor, are receipts from leasing property employed in New Mexico and are subject to the gross receipts tax.
C. Lease of license - franchise agreement: Receipts derived from the lease of a license, such as a liquor license, or from a franchise agreement, are subject to the gross receipts tax.
D. Multistate use of leased equipment:
(1) Where property is rented or leased for employment both within and outside New Mexico the renter or lessor will be subject to the gross receipts tax on that portion of the receipts which is derived from the renting or leasing of property employed in New Mexico.
(2) In order to determine the portion of the receipts which are subject to the gross receipts tax, the total receipts from the lease are to be multiplied by whichever of the following fractions more accurately reflects the receipts from the period of employment of the leased item inside New Mexico:
(a) the numerator is the total miles traveled by the leased items in New Mexico and the denominator is the total miles traveled by the leased items during the lease period; or
(b) the numerator is the total time the leased items were employed in New Mexico and the denominator is the total time of the lease period.
(3) The department will allow a person engaged in the business of leasing property employed both within and without New Mexico to use other methods of apportioning the receipts of such leasing activities upon showing that the other methods more accurately reflect the portion of employment of leased items within New Mexico.
(4) Example: B owns and operates a business located in Santa Fe, New Mexico, which rents or leases vehicles, airplanes, and mobile equipment. The items leased are employed both within and without New Mexico. B is subject to the gross receipts tax on that portion of the receipts which is from employment of the vehicles, airplanes, and mobile equipment within New Mexico.
E. Leasing of property employed outside New Mexico:
(1) Receipts derived from the rental or leasing of property employed outside New Mexico are not subject to the gross receipts tax.
(2) Example: L, a resident of Hobbs, New Mexico, owns a sawmill in Wyoming which is leased to S for three thousand dollars ($3,000) per year. These receipts are not derived from selling property in New Mexico, leasing property employed in New Mexico, performing services outside of New Mexico the product of which is initially used in New Mexico, or performing services in New Mexico. These receipts are not includable in L's gross receipts.
F. Use of vehicles in New Mexico:
(1) Receipts from the rental or leasing of vehicles, airplanes, or mobile equipment which are employed both within and outside New Mexico are subject to the gross receipts tax on that portion of the receipts which are from employment of the vehicles, airplanes, or mobile equipment within New Mexico.
(2) In order to determine the portion of receipts described in the above paragraph which are subject to the gross receipts tax, the total receipts from the lease are to be multiplied by whichever of the following fractions more accurately reflects the receipts from the period of employment of the leased item inside New Mexico:
(a) the numerator is the total miles traveled by the leased items in New Mexico and the denominator is the total miles traveled by the leased items during the period of lease; or
(b) the numerator is the total time the leased items were physically present in New Mexico and the denominator is the total time of the lease period.
(3) The department will allow a person engaged in leasing the above described items to use other methods of apportionment upon a showing that the other methods will more accurately reflect the period of employment of the leased item within New Mexico.
G. Safe harbor lease - purchaser/lessor: A purchaser/lessor who enters into a qualified “safe harbor lease” transaction as defined in Section 168 of the Internal Revenue Code will be subject to the gross receipts tax on the receipts if the property being leased is located in New Mexico.
H. Leasing computers: Receipts from renting or leasing the use of computers or related equipment in New Mexico, on either a part-time or a full-time basis, are subject to the gross receipts tax.
[3.2.1.17 NMAC - Rp, 3.2.1.17 NMAC 10/13/2021]
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 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:
(1) Receipts from providing day care are
receipts from performing a service and are subject to the gross receipts tax.
(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.
(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.
(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 children is paid for by the state
of New Mexico are subject to the gross receipts tax.
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) per child per week for the use of the facility. All receipts from the two-dollar charge 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 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 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 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]
3.2.1.19 GROSS RECEIPTS; RECEIPTS OF AGENTS:
A. Nonemployee agents:
(1) The receipts of nonemployee agents are subject to the gross receipts tax to the extent the education provided by Section 7-9-66 NMSA 1978 is not applicable. The indicia outlined in 3.2.105.7 NMAC will be considered in determining whether a person is an employee or a nonemployee agent.
(2) Example 1: S is a nonemployee salesperson for Z Corporation, an out-of-state business. Z Corporation arranges for S to sell securities belonging to corporation shareholders. Z accepts payment from the purchasers of the security, deposits this payment in a trust account, pays S the commission and then distributes the balance to the seller of the securities. Z does not incur gross receipts tax liability as the result of its activity because it is not selling property or performing services in New Mexico for a consideration. The commissions received by S for selling securities in New Mexico are receipts for performing services in New Mexico and are subject to the gross receipts tax.
(3) Example 2: The receipts of a nonemployee agent or sub-agent derived from commissions received from;
(a) correspondence schools for enrolling persons in those schools;
(b) freight companies, bus transportation firms, and similar business concerns for rendering services; and
(c) the owner of trailers or trucks for leasing those trailers or trucks, are subject to gross receipts tax.
B. Receipts of condominium and other real property owners associations:
(1) As of March 8, 1988, the provisions of this subsection do not apply to receipts which are exempt under the provisions of Section 7-9-20 NMSA 1978.
(2) Associations in which common areas are owned by unit owners:
(a) Amounts received by this type of association from unit owners (owners of homes, offices, apartments or other real property) for accumulation in a trust account owned by the unit owners and expended to provide insurance and pay taxes on the common areas, elements or facilities are not taxable gross receipts since such amounts are not receipts of the association.
(b) Amounts received by an association of this type from unit owners for accumulation in a trust account owned by the unit owners for current or future expenditures for the improvement, maintenance or rehabilitation of the common areas, elements or facilities are not taxable gross receipts since such amounts are not receipts of the association. However, with respect to receipts not exempt under Section 7-9-20 NMSA 1978, when payments are made from the trust account to the association or its employees, officers or representatives for the improvement, maintenance or rehabilitation, these payments are taxable gross receipts of the association under Section 7-9-3.5 NMSA 1978. When payments are made directly from the account to third parties, those third parties will be liable for the gross receipts tax on those receipts.
(c) With respect to receipts which are not exempt under Section 7-9-20 NMSA 1978, associations of this type which bill unit owners may issue nontaxable transaction certificates (NTTCs) when appropriate under Section 7-9-48 NMSA 1978 (sale of a service for resale) to suppliers of these services, unless the service is deductible by the association under the Internal Revenue Code as an ordinary and necessary business expense. The association must report and pay gross receipts taxes on all its receipts for services, including those for which NTTCs are given. This version of Paragraph (2) of Subsection B of 3.2.1.19 NMAC applies to transactions occurring on or after July 1, 2000.
(3) Example A 1: Property Owners Association A receives monthly payments from each individual owner of property located in XYZ condominiums. The funds are held in a separate trust account by Association A for the XYZ unit owners to pay, on behalf of themselves, the property tax accruing to the common areas, insurance covering the common areas, maintenance and repair of the common areas and future improvements and additions to the common areas. On November 10, Association A, as trustee of such funds, issues a check directly from the trust account to the county treasurer for payment of property taxes on the common areas. This payment goes from the trust account directly to the county treasurer with Association A acting as agent for the actual owners of property; therefore, these funds do not become a part of Association A's gross receipts.
(4) Example A 2: Association A employs a maintenance person to maintain and clean the common areas. The maintenance person is responsible for mowing lawns, maintaining the landscape, cleaning halls, lobbies and other common areas and making minor repairs to common facilities. Funds received by Association A from the trust account to pay the maintenance person's wages and to pay various payroll taxes and employee benefits are gross receipts for the performance of service on which Association A is required to pay tax.
(5) Example A 3: NMO Construction Co. contracts to paint and remodel the halls, lobbies and other common areas of the condominiums. Association A, acting as agent, draws funds from the trust account which are paid directly to NMO Construction Co. Since such funds do not become receipts of Association A, the association is not liable for tax on these funds. The funds pass directly to NMO Construction Co. who becomes liable for the gross receipts tax on its receipts for performing construction services.
(6) Example A 4: For the last 10 years, funds have accumulated in the trust for construction of a swimming pool. A Pool Co. builds the pool and is paid directly from the trust account. A Pool Co. is subject to gross receipts tax on the receipts from the construction of the pool. Association A, acting as agent for the property owners, has no receipts and pays no tax on this transaction.
(7) Example A 5: Association A purchases, with its own funds, chemicals which its employee will use to maintain the new swimming pool. To recover this expense, Association A increases the amount it charges the property owners each month and draws funds from the trust account which it places with its own funds. These receipts of Association A are subject to the tax since Association A is performing services for the property owners. This treatment of receipts applies to purchases of other maintenance or cleaning supplies which Association A consumes in the performance of maintenance and cleaning services. Association A may not execute a non-taxable transaction certificate for the purchase of these chemicals or other cleaning supplies, because the chemicals and supplies are consumed in the performance of services by the association.
(8) Associations in which common areas are owned by the association with long-term real property rights held by individual unit owners:
(a) An
association of unit owners in a real estate development in which the common
elements, areas or facilities are owned by the association but subject to
long-term (10 or more years) real property rights of the unit owners (as
defined in Paragraph (2) of Subsection B of 3.2.1.19 NMAC) granted by deed or
covenant, appurtenant to and inseparable from unit ownership, transferable only
by the unit owner or upon acceptance of deed, and not extinguishable by the
association shall be subject to tax in the same manner as associations
described in Subsection B of this section.
If the unit owners cease to hold or possess such real property rights,
the association shall become subject to tax in the same manner as associations described in Paragraph (9) of Subsection B of
3.2.1.19 NMAC.
(b) All
examples in Paragraphs (3) through (7) of Subsection B of 3.2.1.19 NMAC also
apply to associations of unit owners identified
in Paragraph (8) of Subsection B of 3.2.1.19 NMAC.
(9) Associations in which common areas are owned by association: Different treatment is required for an association of unit owners in a real estate development in which the common elements, areas or facilities are owned by the association and the unit owners (as defined in Subparagraph (a) of Paragraph (2) of Subsection B of 3.2.1.19 NMAC) do not possess the real property rights to the common elements described in Paragraphs (2) and (8) of Subsection B of 3.2.1.19 NMAC. All receipts of this type of association (e.g., payments by unit owners for maintenance and use of the common areas) are fully taxable and no NTTCs may be issued for services purchased. Because of the association's status as owner and the absence of real property rights of the unit owners in the common areas, the association is not acting as the unit owners' agent, nor is it reselling a service.
(10) Example C 1: Association C holds title to all common areas of a development which includes a clubhouse, golf course, swimming pool and tennis courts. Each owner of property within the development is a member of Association C and pays a membership fee. In consideration for the fees received, Association C grants each member a license to use facilities owned by the association. Association C is liable for gross receipts tax on its receipts from granting the licenses to use the facilities.
(11) Example C 2: Association C contracts with a security services company to provide a security officer to patrol the facilities which the association owns. Association C does not resell these services provided by the security services company and may not execute a non-taxable transaction certificate to purchase these services.
(12) Example C 3: Association A, Association B and Association C maintain vending machines from which soft drinks, snacks and other items of tangible personal property are sold. The associations are deriving gross receipts from the sale of tangible personal property and must pay gross receipts tax on these receipts. However, they may also execute a non-taxable transaction certificate when purchasing the soft drinks, snacks and other tangibles, since these items are resold by the associations.
C. Reimbursed expenditures: The receipts of any person received as a reimbursement of expenditures incurred in connection with the performance of a service or the sale or lease of property are gross receipts as defined by Section 7-9-3.5 NMSA 1978, unless that person incurs such expense as agent on behalf of a principal while acting in a disclosed agency capacity.
D. Reimbursement of expenditures made to volunteers:
(1) A volunteer who contributes time, effort or talent without expectation of consideration or remuneration is not selling the services performed. When a volunteer receives reimbursement for out-of-pocket expenses incurred in the performance of a service as a volunteer which were directly related to the work volunteered, reimbursement of those expenses is not gross receipts.
(2) For purposes of Paragraph (1) of Subsection D of 3.2.1.19 NMAC, the term "volunteer" means any person who contributes time, effort or talent for the direct benefit of an organization which is exempt from taxation under the Internal Revenue Code. The term also extends to any person who contributes time, effort or talent without the receipt of consideration or remuneration to the state of New Mexico or any agency or any political subdivision of the state, or to the United States or any agency of the United States. "Volunteer" further includes any elected official serving without consideration or remuneration and any appointive non-employee member of any public commission or board serving without consideration or remuneration, whether the appointment was made by the governor, any other elected official or a public body.
(3) For purposes of Paragraph (1) of Subsection D of 3.2.1.19 NMAC, "reimbursement" includes per diem amounts set by statute to reimburse uncompensated elected and appointed governmental officials for the expense of carrying out official duties.
[3.2.1.19 NMAC - Rp, 3.2.1.19 NMAC 10/13/2021; A, 11/29/2022]
3.2.1.20 Gross Receipts of Marketplace Providers and Marketplace
Sellers:
A. Gross Receipts of Marketplace Providers: Under Section 7-9-3.5 NMSA 1978, the receipts of marketplace providers are defined to include receipts collected by a marketplace provider engaging in business in the state from sales, leases and licenses of tangible personal property, sales of licenses and sales of services or licenses for use of real property that are sourced to this state and are facilitated by the marketplace provider on behalf of marketplace sellers, regardless of whether the marketplace sellers are engaging in business in the state. As used here, the term “collected by a marketplace provider” means amounts paid by the customer directly to the marketplace provider or indirectly through third parties, where the marketplace provider either retains the receipts or transmits all or part of the receipts to the marketplace seller, regardless of whether the marketplace provider retains any portion of the gross receipts as consideration in exchange for the marketplace provider's services . The receipts of the marketplace provider, therefore, include all gross receipts collected from the customer for the sales, leases and licenses, regardless of whether any amount is paid over to the marketplace seller. The gross receipts collected by the marketplace provider are treated as receipts of that marketplace provider from sales, leases and licenses for purposes of the Gross Receipts and Compensating Tax Act, including exemptions and deductions, as though the marketplace provider had gross receipts from selling, leasing or licensing.
B. Gross Receipts of Marketplace Sellers: Under Section 7-9-3.5 NMSA 1978, a marketplace seller that sells, licenses or leases through a marketplace provider to customers in New Mexico has gross receipts in New Mexico from selling, licensing or leasing under Section 7-9-3.5 NMSA 1978. A marketplace seller may be entitled to deduct gross receipts for sales, licenses or leases facilitated on its behalf by a marketplace provider under Section 7-9-117 NMSA 1978. A marketplace seller that is not entitled to deduct gross receipts for sales, licenses or leases facilitated on its behalf by a marketplace provider under Section 7-9-117 NMSA 1978 may be entitled to other exemptions and deductions under the Gross Receipts and Compensating Tax Act that would otherwise apply to those gross receipts.
[3.2.1.20 NMAC - N, 10/13/2021]
3.2.1.21 TAX ON GROSS RECEIPTS FROM SERVICES
PERFORMED OUTSIDE THE STATE:
A. Beginning July 1, 2021 most services performed outside
New Mexico the product of which is initially used in New Mexico are not exempt
under Section 7-9-13.1 NMSA 1978.
B. The term “initial use” is used here as defined in Section
7-9-3 NMSA 1978 and in other regulations under the Gross Receipts and
Compensating Tax Act. Gross receipts
from selling services performed outside New Mexico are subject to the gross
receipts tax only if the product of the service is initially used in the
state. If the product of the service
performed outside of New Mexico is delivered in New Mexico but not initially used
in the state, receipts from selling the service are not taxable in the state.
C. If the product of a service performed outside of New
Mexico is initially used in the state, then the business location to which the
gross receipts and related deductions are reported and the applicable tax rate
will be determined under Section 7-1-14 NMSA 1978, which, depending on the type
of service, may look to the location of delivery of the service to the
customer.
[3.2.1.21
NMAC - Rp, 3.2.1.21 NMAC 10/13/2021]
3.2.1.22 LEASING: Security agreement distinguished from a lease - tax consequences:
A. The gross receipts from leasing equipment to a lessee for the lessee's own use and not for subsequent leasing are subject to the gross receipts tax unless the presence of all or a majority of the following or similar indicia indicates that the transaction between lessor and lessee is in fact a financing transaction between a secured party and a buyer:
(1) There is a written agreement which provides that, upon compliance with the terms of the agreement, the buyer has the option to purchase the property without additional consideration or with nominal consideration; exercise of the option in itself is not sufficient to establish the transaction as an installment sale.
(2) The secured party pays for the equipment selected by the buyer from the stock of an independent vendor with funds allocable to a line of credit previously extended by the secured party to the buyer.
(3) The payments made by the buyer to the secured party are determined by the cost of the equipment selected by the buyer plus an interest charge added by the secured party.
(4) If the buyer is not a federal, state, local or Indian government, the equipment is carried as an asset on the books of the buyer and depreciated by the buyer, not the secured party, and if the buyer is a federal, state, local or Indian government, the tangible personal property is not carried as an asset on the books of the seller or depreciated by the seller.
(5) The secured party treats the total amount of payment as receivables on its books and treats the interest charged the buyer as “unearned income”, transferring amounts to “income” as payments are received.
B. The presence of these or other such factors between the parties to an agreement denominated as a “lease agreement” will lead to the conclusion that the lessee under such an arrangement is the purchaser of the equipment, and that the lessor as the seller of the equipment is a secured party financing the sale and is using the “lease” as a form of security agreement. In such cases the rental receipts of the lessor will not be gross receipts from leasing and, unless all or a portion of the rental receipts are gross receipts from the installment sale of property, will not be subject to the gross receipts tax. However, the gross receipts from the sale of such equipment by a vendor in New Mexico who also may be the secured party in a two party transaction will be subject to the gross receipts tax unless an exemption or deduction applies.
C. The buyer, other than a federal, state, local or Indian government, in such an arrangement will be liable for payment of the compensating tax if the buyer introduces property into this state which was acquired outside the state as a result of a transaction that would have been subject to the gross receipts tax had it occurred within the state and if the property is not subject to any exemption from payment of the compensating tax.
[3.2.1.22 NMAC - Rp, 3.2.1.22 NMAC 10/13/2021]
3.2.1.23 “PERFORMANCE OF A SERVICE”, “PRODUCT OF
THE SERVICE”, “INITIAL USE”, AND “DELIVERY”; PRESUMPTIONS:
A. Relationship between certain terms and consistency in use
of those terms. The terms “sale of a
service performed,” “performance of a service,” “product of the service,”
“initial use” and “delivery” are defined or used in the Gross Receipts and
Compensating Tax Act and regulations in a way that makes them closely related
in their application. The terms are used
in Section 7-9-3.5 NMSA 1978, the definition of “gross receipts,” to describe
gross receipts from performing or selling services that will be subject to tax
and in Section 7-9-57 NMSA 1978 to describe a deduction for sales to
out-of-state buyers. Regardless of the
context in which they are used, or whether the service is performed inside or
outside the state, these terms will be interpreted and applied consistently.
B. Delivery and initial use of the product of construction
services and construction related services, in-person services, and services
which that produce tangible personal property.
(1) The product of a construction service
or a construction related service is delivered and initially used in New Mexico
if the related construction site is located in New Mexico.
(2) The product of an in-person service
is delivered and initially used in New Mexico if the location of the
performance of the service is in New Mexico.
(3) The product of a service, the primary
purpose of which is to produce tangible personal property, is delivered and
initially used in New Mexico if the tangible personal property is delivered to
the purchaser or a person designated to receive the property in New Mexico.
C. Delivery and initial use of the product of a service
other than construction services, construction related services, in-person
services, or services which produce tangible personal property - generally.
(1) As defined under Subsection E of
Section 7-9-3 NMSA 1978, “initial use” or “initially used” means the first
employment for the intended purpose and expressly excludes the following:
(a) observation of tests conducted by the
performer of services;
(b) participation in progress reviews,
briefings, consultations and conferences conducted by the performer of
services;
(c) review of preliminary drafts,
drawings and other materials prepared by the performer of the services;
(d) inspection of preliminary prototypes
developed by the performer of services; or
(e) similar activities.
(2) The location of delivery or initial
use of the product of a service is determined based on relevant facts and
circumstances, including primarily:
(a) The location of the purchaser or the
person to whom the service is intended to be delivered.
(b) The terms of the agreement between
the parties, as evidenced by any formal writing or documentation as well as the
parties’ behavior, including, but not limited to, any behavior which
constitutes an alteration of the parties’ agreement.
(c) The nature of the service and the
manner in which similar services are ordinarily delivered and initially used.
(3) The delivery and initial use of the
product of a separate service, which is sold with other services or property,
will be determined based on the facts and circumstances relating to that
separate service. For this purpose, a
“separate service” is a service that would be considered a service under
3.2.1.29 NMAC, but may be sold together with property or other services, and
which the seller could have sold separately to the buyer, though it was in fact
sold as part of a single transaction or contract along with other services or
property. Similarly, a single contract
may involve services that are to be performed in multiple phases, where each
phase may constitute a separate service under 3.2.1.29 NMAC. The delivery and initial use of the product
of each separate service, as described in this Paragraph (3), may occur at
different locations under the relevant facts and circumstances.
(4) A single or separate service, as that
term is used in Paragraph (3) of Subsection C of 3.2.1.23 NMAC may, under all
the relevant facts and circumstances, appear to have multiple points of
delivery or initial use both inside and outside the state. In particular, this may be the case for
services sold to businesses or organizations. If there is a primary location of
delivery or initial use, this location will be deemed the location of delivery
or initial use for purposes of the Gross Receipts and Compensating Tax
Act. The primary location of delivery
may be determined by facts and circumstances that show the location of the
persons or offices that contracted for or oversee the service or that approve
payment of the service or determine if the service has been completed
properly. The primary location of
initial use may be determined by the primary location of delivery or the place
in which the most significant portion of initial use takes place.
D. Presumptions as to delivery and initial use of the
product of the service in New Mexico; reliance on purchaser
representations. Other than services
described in Subsection B, of 3.2.1.23 NMAC, the following presumptions apply
to all sales of services unless the seller has information and evidence
sufficient to rebut the presumptions:
(1) if the purchaser of the service is an
individual, then delivery and initial use of the product of the service are
presumed to occur in New Mexico if the seller has information showing a billing
address or other primary location for that purchaser in New Mexico;
(2) if the purchaser of the service is a
person other than an individual, then delivery and initial use of the product
of the service are presumed to occur in New Mexico if that person’s domicile or
primary place of business or operations is in New Mexico;
(3) if the purchaser of the service is a
person other than an individual and the person has its domicile or primary
place of business or operations outside New Mexico, then delivery and initial
use of the product of the services are presumed to occur in New Mexico if the
seller’s primary contact for purposes of the contract or the billing address
for the services is located in New Mexico; and
(4) in a case where the facts and
circumstances demonstrate that delivery of the product of the service occurs in
New Mexico, initial use of the product of the service is presumed to occur in
New Mexico.
In order to
rebut these presumptions, the seller must show that delivery or initial use of
the product of the service is not in New Mexico considering the relevant facts
and circumstances as generally described in this Subsection C of 3.2.1.23
NMAC. The seller may also rely in good
faith on written representations made by the purchaser of the service that the
initial use of the service will not be made in New Mexico, provided that the
seller has no indication that this representation is untrue.
E. Partial performance of service inside the state If a seller performs services partially
inside and outside New Mexico which are delivered in New Mexico but are
initially used outside the state, only the portion of the gross receipts from
the service performed inside New Mexico will be subject to the gross receipts
under Sections 7-9-3.5 and 7-9-57 NMSA 1978.
Because the seller delivers the product of the service in New Mexico,
the portion of gross receipts from the service performed in the state is not
deductible under Section 7-9-57 NMSA 1978.
The seller may apportion the gross receipts from the service performed
inside and outside the state using the relative direct costs incurred.
F. Change in facts and circumstances during the performance
of a service and incomplete services. A
change in facts and circumstances during the performance of a service may
change the delivery or initial use of the product of a service. Likewise, the failure to complete the
performance of a service may change the delivery or initial use of the product
of a service.
G. No effect on compensating tax due. The provisions of this regulation apply only
to a seller’s determination of whether the delivery or initial use of the
product of a service are in New Mexico.
A purchaser who makes a taxable use of a service in New Mexico may owe
the compensating tax even if the seller was not required to pay tax on the
gross receipts from the performance or sale of that service.
H. Examples:
(1) A lawyer in New Mexico and her New
Mexico client, with a New Mexico billing address, agree that the lawyer will
perform the legal service of drafting a will.
The lawyer charges for her service on an hourly basis. The lawyer reviews the client’s finances and
other information. The lawyer completes
the will and provides it to the client.
After reviewing the will, the client executes the will. Under Subsection D of 3.2.1.23 NMAC, delivery
and initial use of the product of the service are presumed to be in New
Mexico. Nor would the lawyer be able to
rebut these presumptions since, under all the facts and circumstances, delivery
of the product of the service occurs in New Mexico when the client receives the
draft will from the lawyer and initial use of the product of the service occurs
in New Mexico when the client executes the will.
(2) Same facts as in Paragraph (1) of Subsection H of 3.2.1.23 NMAC, except
that before the will is finally drafted, the client tells the lawyer she has
changed her mind and will not need the will.
The lawyer and the client agree that the lawyer will not provide any
documentation of advice or a draft of the will based on the work done, even
though the client will pay for the hours already worked. As in Paragraph (1) of Subsection D of
3.2.1.23 NMAC, delivery and initial use of the product of the service are
presumed to be in New Mexico. Nor would
the lawyer be able to rebut this presumption since under the product of this
incomplete service is the work done by the lawyer for the client in New Mexico
and there are no facts that would rebut the presumption that delivery and
initial use of this product occur in New Mexico.
(3) Same facts as in Paragraph (1) of
Subsection H of 3.2.1.23 NMAC, except the client is outside New Mexico and the
lawyer delivers the will to the client outside New Mexico where the client
executes the will. In this case, there
is no presumption under Subsection D of 3.2.1.23 NMAC that delivery or initial
use of the product of the service is in New Mexico. Under the facts and circumstances, the
product of the service, the will, is delivered and initially used outside New
Mexico. Therefore, the lawyer will be
entitled to a deduction under Section 7-9-57 NMSA 1978 provided the lawyer has
evidence required to support the deduction.
(4) Same facts as in Paragraph (1) of Subsection H of 3.2.1.23 NMAC, except
the lawyer performs the service outside New Mexico and the lawyer delivers the
will to the client in New Mexico, where the client executes the will. As in Paragraph (1) of Subsection D of
3.2.1.23 NMAC, delivery and initial use of the product of the service are
presumed to be in New Mexico. Nor would
the lawyer be able to rebut this presumption since under the facts and
circumstances, the product of the service, the will, is delivered and initially
used in New Mexico. Note that while
lawyer in this case would have gross receipts subject to tax because the
service is initially used in the state, under 3.1.4.13 NMAC, because the
service is a professional service, the gross receipts would be sourced to the
state reporting location and subject to tax at the state rate.
(5) Same facts as in Paragraph (2) of
Subsection H of 3.2.1.23 NMAC except the lawyer is outside New Mexico. As in Paragraph (2) of Subsection D of
3.2.1.23 NMAC, delivery and initial use of the product of the service are
presumed to be in New Mexico. In this
case, however, the product of this incomplete service is the work done by the
lawyer for the client outside New Mexico and the lawyer may, therefore, be able
to rebut the presumption that delivery or initial use of this product occurs
inside New Mexico. Assuming the lawyer
can rebut the presumption and show that initial use of the product of the
service occurs outside New Mexico, the lawyer would have no gross receipts
subject to tax.
(6) A New Mexico seller agrees to provide
a consulting service to a federal government agency, contracting and overseeing
the performance of the service at an out-of-state location. The contract for the service provides that
the seller is required to prepare a report summarizing the work and deliver
that report to the out-of-state location.
The contract also provides that the government will use the report to
select products for purchase at facilities outside New Mexico. During the contract, the government agency,
which has offices in New Mexico, answers questions posed by the New Mexico
seller and responds to requests for data.
Here, there is no presumption in this case under Subsection D of
3.2.1.23 NMAC that the delivery or initial use of the product of the service
are in New Mexico. Furthermore, under
all the facts and circumstances, the product of the service, the report, is
delivered and initially used outside the state.
(7) A seller performs website design
services outside New Mexico for a client that has business locations inside and
outside the state. The seller works with
and responds to the client’s technology manager the client’s out-of-state
office. The seller and the client agree
that the seller will make a demo of the proposed website for the technology
manager to test. After the test, the
seller will finish the website, with any necessary changes, and will give the
client access to operating the website.
The operation of the website will be done primarily at offices of the
client outside the state, although some operations will also be done in the New
Mexico office. Here, there is no
presumption under Subsection D of 3.2.1.23 NMAC that the product of the service
is delivered or initially used in New Mexico.
Furthermore, under all the facts and circumstances, the product of the
service, the final website, will be delivered and initially used outside the
state.
(8) A seller of medical testing services
performed outside New Mexico has a client in New Mexico who purchases the
services for its own medical facilities both inside and outside the state. The seller of testing services charges by the
test. The results of tests are sent to
the client’s medical facilities in New Mexico where they are reviewed and then
made available to doctors and patients.
Each testing service is a separate sale of a service. Here, for each service, the product of the
service is presumed to be delivered and initially used in New Mexico under
Subsection D of 3.2.1.23 NMAC. The
seller in this case will not be able to rebut the presumption because, under
the facts and circumstances, the product of these services are the results
which are delivered to New Mexico and initially used at facilities where they
are reviewed.
(9) A seller of payroll services
performed outside New Mexico has a business client which has offices both
inside and outside New Mexico. The
seller’s contact is with the business’s headquarters, outside the state, and the
seller obtains information to perform the payroll service from the business’s
chief accountant located in that office.
Each pay period, the seller transmits funds electronically drawing on
the business’s accounts to pay employees and to submit tax returns and also
transmits reports to the business at the headquarters office. This information is reviewed by the
headquarters office and any mistakes are communicated by the business to the
seller. Each year the seller also transmits W-2s and other tax information by
mail. Here, there is no presumption
under Subsection D of 3.2.1.23 NMAC that the product of the service is
delivered or initially used in New Mexico.
It may appear that the product of the service is delivered and initially
used both in and outside New Mexico.
Under Paragraph (4) of Subsection C of 3.2.1.23 NMAC and under all the
relevant facts and circumstances, the product of the service, payroll
information, is deemed delivered to the primary location of delivery outside
the state and the initial use of the product of the service is, likewise,
deemed delivered to occur at the primary location of initial use outside the
state.
(10) Same facts as the example above, except
that the seller of payroll services performs those services in New Mexico. Again, as in the previous, while the product
of the service may appear to be delivered and initially used both inside and
outside New Mexico, under Paragraph (4) of Subsection C of 3.2.1.23 NMAC and
under all the relevant facts and circumstances, the product of the service,
payroll information, is deemed delivered to the primary location of delivery outside
the state and the initial use of the product of the service is, likewise,
deemed to occur at the primary location of initial use outside the state.
(11) A seller of video editing services
performed inside New Mexico are sold to an out-of-state customer who posts the
edited video on-line for use by its customers throughout the United
States. After the edited video is
delivered and posted on the customer’s website, the customer then asks the
seller in New Mexico to test access to the video, and the seller agrees to do
so. The fact that the final action
related to the service, the testing of the access to the video, occurs in New
Mexico does not change the result under all the relevant facts and
circumstances that the delivery and initial use of the product of the service,
the edited video, occurs outside New Mexico when the video is delivered to and
posted by the customer on its website.
(12) Same facts as Paragraph (11) of
Subsection H of 3.2.1.23 NMAC except that the seller in New Mexico agrees to
both edit the video and provide data from a survey of other websites. The seller charges separately for these
services, which it also regularly sells on a separate basis, but the contract
and billing information for the two services are combined. These services would be separate services
under 3.2.1.29 NMAC and the delivery and initial use of the product of each
service would be determined based on the relevant facts and circumstances for
each service.
[3.2.1.23 NMAC
- N, 10/13/2021]
3.2.1.24 [RESERVED]
3.2.1.25 MANUFACTURING - GENERAL EXAMPLES:
A. For purposes of Subsection H of Section 7-9-3 NMSA 1978, combining means assembling two or more pieces of tangible personal property to create another piece of personal property. Processing means to convert tangible personal property into a marketable form. A person is engaged in the business of manufacturing only if:
(1) that person combines or processes components or materials;
(2) the value of the tangible personal property which has been combined with other tangibles or which has been processed has increased as a direct result of the manufacturing process; and
(3) the person manufacturing sells the same or similar type of manufactured products in the ordinary course of business.
B. The following examples illustrate the application of Subsection H of Section 7-9-3 NMSA 1978.
C. Example 1: Y sells parts and bodies for automobiles to X. X, who owns a used car lot and garage, places the parts and bodies in and on used cars from his lot. X then resells the renovated cars to the general public in the ordinary course of business. X is manufacturing because X is assembling and fabricating the cars to increase their value and is selling them in the ordinary course of business.
D. Example 2: Y, a machine tool firm, assembles three machine tools solely for its own use in producing components. Y does not sell any of these three machine tools. Assembling the machine tools is not “manufacturing” because Y is not assembling the tools to increase their value for sale in the ordinary course of business.
E. Example 3: S, who is in the business of building custom boats, purchases fiberglass and other supplies from F, a fiberglass manufacturer. S is furnished blueprints by customers and all the materials that are to be purchased are specified in those blueprints. After S obtains all the materials from F, S builds the boats to the specifications set out in the blueprints and then sells the boats to customers in the ordinary course of business. S is manufacturing boats. S may therefore give F a nontaxable transaction certificate.
F. Example 4: R is in the business of retreading and recapping pneumatic tires. If R retreads and recaps a tire carcass which R owns in order to increase its value for sale in the ordinary course of business and that tire carcass becomes a component part of a recapped tire, then R is “manufacturing”.
G. Example 5: P is in the business of printing and silk screening. If P uses only printing supplies which P owns as an ingredient or component part of the end product which P sells in the ordinary course of business, then P is “manufacturing”. If P uses printing supplies such as paper, ink, staples, glue, binding, chemicals, and dyes provided by the customer, then even though such supplies become ingredient or component parts of an end product which P sells in the ordinary course of business, P is “performing a service” and not “manufacturing”.
H. Example 6: Y is a newspaper publishing company located outside New Mexico with no business location, salespersons or other presence in New Mexico. Z is a printing company inside New Mexico. Y arranges to have Z print the newspapers which it publishes. Z is required to provide newsprint (paper), ink, and all the materials required for the production of newspapers. Z is manufacturing printed material. Z, in the given fact situation, does not have receipts from either publishing a newspaper or selling a newspaper; therefore, the deductions provided by Section 7-9-63 NMSA 1978 and Section 7-9-64 NMSA 1978 do not apply. Z may deduct from its gross receipts its receipts from selling printed material to Y if the printed material is delivered to Y outside New Mexico.
I. Example 7: A is in the business of painting oil and water color pictures for sale in the ordinary course of business. A is a manufacturer of tangible personal property. A combines oils, color pigments, fixing agents, canvas, frames and glass in a painting as components and properly issues a nontaxable transaction certificate to the seller of the components. A cannot properly issue a nontaxable transaction certificate to the seller of brushes, palettes, knives, cleaners, erasers and easels since these items of property are not components for purposes of Subsection H of Section 7-9-3 NMSA 1978.
[3.2.1.25 NMAC - Rp, 3.2.1.25 NMAC 10/13/2021]
3.2.1.26 [RESERVED]
3.2.1.27 PROPERTY:
A. Bills, notes, etc.: Tangible personal property does not include bills, notes, checks, drafts, bills of exchange, certificates of deposit, letters of credit, or any negotiable instrument. Coins, stamps, and documents which have a historic value or market value in excess of their face value are tangible personal property.
B. Sale of license to use software is sale of property:
(1) The definition of property includes licenses. The sale of a license to use software constitutes a sale of property and comes within the definition of gross receipts.
(2) The transaction constitutes a sale of a license to use the software program when a computer software company sells an already-developed software program where:
(a) no extraordinary services are performed in order to furnish the program;
(b) the buyer pays a fixed amount for the license to use the program and use is generally limited to a specific computer; and
(c) the buyer may not resell to any other person a license to use the program and may not transfer the software package itself to any other person.
C. Granting the right to hunt is the sale of a license to use: For purposes of this section, granting by a landowner to another, a right to access and hunt within the boundaries of the landowner’s real property is a license to use the real property. A license is a form of property as defined in Subsection J of Section 7-9-3 NMSA 1978 and the receipts from the sale of a license are subject to the gross receipts tax. The following are four types of hunting-related transactions, that when sold, may include the sale of a license:
(1) the sale of a hunting package that includes permission to hunt on private land;
(2) the sale of an authorization to hunt on private land granted by the New Mexico department of game and fish;
(3) the granting of permission or access to enter onto the private land to hunt; or
(4) the sale of a license/permit issued by the state to hunt on public land.
D. Receipts from selling a hunting package are subject to gross receipts tax to the extent that the individual components of the package are not deductible or exempt from the gross receipts tax pursuant to the Gross Receipts and Compensating Tax Act. A person that sells a hunting package that consists of taxable and nontaxable components must reasonably allocate the receipts based on the value of the individual components. For purposes of this section, a “hunting package” may include the following components:
(1) lodging;
(2) meals;
(3) delivery and transportation services;
(4) guide services;
(5) license to use the property;
(6) carcass of the hunted animal; or
(7) other services or tangible personal property included in the package.
E. Example: X owns a ranch in New Mexico and sells guided hunting packages. Included in the price for the hunt X guarantees that the hunter will retrieve an animal, lodging at the ranch, meals, experienced hunting guide, retrieval, caping, delivery to local meat processor and taxidermist. Not included in the price are expenses associated with alcohol consumption, meat processing, taxidermy services or gratuities for guides. X receipts from the sale of this type of hunting package includes receipts from providing services, the sale of tangible personal property (meals), the sale of the carcass (possibly livestock) and from granting a license to use the land within the ranch boundaries. X must determine a reasonable method of allocating their receipts between components that are subject to gross receipts tax and those that are exempt from gross receipts tax (sale of livestock).
[3.2.1.27 NMAC - Rp, 3.2.1.27 NMAC 10/13/2021]
3.2.1.28 [RESERVED]
3.2.1.29 SERVICES:
A. When a transaction is predominantly a service:
(1) A transaction involving both the transfer of tangible personal property to the buyer and the performance of a service other than a construction or research and development service is predominantly a service when:
(a) the seller is not regularly engaged in selling or leasing the same or similar tangible personal property other than in conjunction with the sale of a service; and
(b) at least one of the following conditions applies:
(i) the transaction is primarily the performance of work and the transfer of any property through the transaction is incidental to the performance of the required work; or
(ii) the transaction requires the performance of work which is substantially greater in value than the value of the tangible personal property involved in the transaction; or
(iii) the performer of the service has the power to influence significantly the degree of involvement of the tangible personal property in the transaction.
(2) When the transaction is predominantly a service other than construction, any tangible personal property transferred in conjunction with the service is incidental to the service and the value of the property becomes an element of and is incorporated into the value of the service sold. Type 2 nontaxable transaction certificates (NTTCs) may not be executed to acquire the property so incorporated.
(3) Example A1: C, a consultant, reviews operations of clients; C does not engage in the business of selling office supplies. C is hired to evaluate certain operations of L. C presents the evaluation to L as a written report, with supplemental data on computer disks. C contends that the paper used for the report and the computer disks were sold to L and therefore C may execute a Type 2 NTTC to acquire these tangibles. The transaction with L is predominantly the performance of a service. The paper and computer disks convey the result of the C's service and are incidental to that service. C may not execute Type 2 NTTCs for the purchase of these tangibles.
(4) Example A2: X is engaged in the business of performing certain services and is not engaged in selling tangible personal property in the ordinary course of business. X enters into a cost plus a fixed fee contract with Y to conduct a survey of residents of this state to determine consumer acceptability of and demand for particular household products which Y manufacturers and plans to distribute into New Mexico. The contract specifies that on completion or termination of the contract any tangible property purchased by X, and billed by X, will be paid by Y as a cost of fulfilling the requirements of the contract. X chooses to purchase a personal computer to use in the performance of the service. X will enter results of the surveys into the computer which will classify the responses and generate reports which X will analyze, interpret and submit to Y. Since X has the power to exert significant influence over the degree of involvement (use) of the computer under the contract and since X is not engaged in selling computers or similar property in the ordinary course of business, X's receipts attributed to the cost of the computer are receipts from performing a service. X may not execute a Type 2 NTTC for the purchase of the computer.
(5) Example A3. A well servicing company uses disposable bits and other disposable “rubber goods” in servicing oil and natural gas wells. The disposable items are used up in the course of the servicing; pieces of the abraded material are left in the well. The company claims it should be allowed to execute Type 2 NTTCs because the disposable items are left with the owner(s) of the well. These materials are incidental to the performance of the service. The company may not execute Type 2 NTTCs in acquiring these disposable items.
(6) Construction is defined to be a service and that service is defined to include all tangible personal property which becomes an ingredient or component part of the construction project. Under the provisions of Section 7-9-51 NMSA 1978, however, a person engaging in the construction business may execute a nontaxable transaction certificate for the purchase of tangible personal property which will become an ingredient or component part of a construction project.
(7) The product of a research and development service may be tangible property, such as prototypes, facsimiles, reports or other similar property. Even though the product of the service may itself be tangible, receipts from the transaction are receipts from the sale of a service and not from the sale of tangible personal property. Accordingly the performer of research and development services may not execute a nontaxable transaction certificate when purchasing tangible personal property used to assemble or create such product of the service, except as provided by Section 3.2.205.11 NMAC.
(8) Example B1: B, an engineering company, contracts to design a product for Y, a manufacturer, who intends to manufacture the product for sale to the general public. The contract requires B to submit plans for the product and a prototype of it. B contends that the plans and prototype are tangible personal property and therefore Type 1 or Type 2 NTTCs may properly be executed. B is performing a research and development service, even though the product of the service is embodied in tangible personal property. The tangibles used are incidental to the performance of the service. Type 1 and Type 2 NTTCs may not be executed to acquire the tangible personal property making up the plans and prototype.
(9) Example B2: B, an engineering company, is a qualified contractor within the meaning of Section 3.2.205.11 NMAC under a contract with D, an agency of the United States. The contract is a research and development contract covered by the agreement between the state of New Mexico and several agencies of the United States, including D. The contract calls for B to design and submit plans for a rocket motor and to develop and deliver a facsimile of the rocket casing to a research facility for testing. B maintains that B is selling tangible personal property to the federal government. B is performing research and development services. The plans and facsimile are products of that service. The transaction is predominantly the performance of a service rather than the sale of tangible personal property. B is not selling tangible personal property to the federal government but may be eligible to execute Type 15 NTTCs if the conditions specified by Section 3.2.205.11 NMAC and the State-Federal agreement are met.
(10) When the performer of the service either is regularly engaged in selling or leasing by itself the type of tangible personal property transferred in the transaction, a single transaction may encompass both the sale of a service and the sale of property as distinct and separable parts of the transaction. In such a case, Type 2 NTTCs may be executed to acquire the tangible personal property resold if the conditions in Subsection A of Section 3.2.205.10 NMAC are met.
(11) Example B3: F, an accountant, performs bookkeeping services for several clients. The accountant transmits various forms and papers to the clients in the course of providing this service. G, another accountant, runs short of certain forms and purchases some from F to tide G over until G's regular suppliers are open for business. F contends that, because F has sold to G tangible personal property by itself of the type sold to F's clients, two separate transactions occur with F's clients. F is not regularly engaged in the business of selling these forms. F's transactions with F's clients are not separable into distinct service and tangible components. F's transactions are predominantly the performance of a service.
(12) Example B4: H, who operates a computer hardware and software company, is hired to write computer programs for one of M's divisions, acquire and set up 25 computer stations for use of the division and to train the division personnel in the use of the stations and programs. H contends that the computer stations are sold to M and therefore H may execute Type 2 NTTCs to acquire them for resale. The transaction encompasses both the performance of services (developing the programs and training the division personnel) as well as the sale of tangible personal property (the computer stations) as separable elements. Therefore H may execute Type 2 NTTCs in acquiring the computer stations.
(13) See Paragraph (8) of Subsection A of Section 3.2.205.10 NMAC for transactions in which buyer regularly sells the tangible personal property by itself.
B. Transactions in which neither the performance of a service or the sale of tangible personal property predominates:
(1) In some cases, a transaction involving the performance of a service other than a construction or research and development service and the sale of tangible personal property may not be predominately either the performance of a service or the sale of tangible personal property, as for example where receipts attributable to each constitutes more than forty percent of the total receipts from the transaction. In such cases, if the market value or costs of the tangible personal property or services is readily ascertainable and if the taxpayer's records adequately reflect the portion of receipts derived from the sale of tangible personal property and the portion derived from the performance of services, the receipts may be apportioned accordingly. The burden rests on the taxpayer to provide that information, and to justify that the portion of receipts attributable to the sale of the tangible personal property or to the performance of services accurately reflects the relative market value or costs, including reasonably apportioned overhead, of the tangible personal property or services. The clearest way of carrying that burden is to specify separately on the invoice the charges for the property and the charges for the services, and to retain sufficient records to allow a determination that the relative value of either the property or the services is not overstated.
(2) Example 1: Taxpayer X enters into a contract with a governmental entity to maintain the entity's computer equipment. The contract obliges X to check and maintain the equipment, providing replacement parts such as toner cartridges on a regular basis, and to repair the equipment, including the replacement of broken parts. X bills the entity separately stating the charges for its maintenance and repair services and for the replacement parts. Receipts from the charges for replacement parts will be receipts from the sale of tangible personal property to a governmental entity and are deductible pursuant to Section 7-9-54 NMSA 1978. Receipts from charges for the services are not deductible.
(3) Subsection E of Section 3.2.1.29 NMAC does not apply to construction or to transactions in which prototypes or other tangible products of a service are transferred.
[3.2.1.29 NMAC - Rp, 3.2.1.29 NMAC 10/13/2021]
3.2.1.30 USE AND USING: The definition of “use” and “using” pursuant to Subsection N of Section 7-9-3 NMSA 1978 includes three components: use, consumption and storage.
A. Use: The first component, “use”, means to employ or utilize property or a service for a particular purpose. Use does not include mere ownership or possession of property. Use does not include the mere treatment, processing or servicing of tangible property to make the property fit for utilization when the ultimate use of the property is outside New Mexico. Use does not include the transfer to the customer of tangible personal property in the course of the treatment, processing or servicing or the return of the property to the owner at the conclusion of the treatment, processing or servicing.
(1) Example 1: The uses of a chair are many and varied. Its designed or intended use is being sat on by human beings. A chair, however, may also be “used” to wedge a door shut, as a step-ladder to reach something, as a receptacle to hold objects, as a display item, as a support to prop up a table or shelf and many other purposes not planned by its designer or maker. In contrast, a chair is not “used” by being assembled, polished, painted, upholstered or recaned.
(2) Example 2: B enters into a contract with C, a firm in New Mexico. Under the contract, B sends a gaseous compound to C for separation. C returns the separated materials to B or delivers them to D for further processing. B has not used the compound or the separated materials in New Mexico.
B. Storage:
(1) The term “using” includes storage in New Mexico except where the storage is for subsequent sale of the property in the ordinary course of the seller's business or for use solely outside New Mexico.
(2) Example 1: D, a resident of Utah, buys pipe in Texas to be used solely in Utah. The pipe is shipped into New Mexico, unloaded, and stored for three days. It is then reloaded and shipped to Utah. There is no use of the pipe in New Mexico within the meaning of Subsection N of Section 7-9-3 NMSA 1978. The transaction which occurred was merely storage for use solely outside New Mexico.
(3) Example 2: X Construction Company purchases a bulldozer in Illinois intending to use it in its construction business. The bulldozer is then delivered to X in New Mexico. X does not have any immediate use for the bulldozer so it is stored in the back lot of the construction company with other equipment. Two months later X changes plans and sells the bulldozer to Y Construction Company who needs it for a job. The bulldozer remained in storage from the day X received it until the day it was sold. Since the storage of the tractor was not for subsequent sale in the ordinary course of X's business, the storage of the tractor is a “use” within the meaning of Subsection N of Section 7-9-3 NMSA 1978. Therefore, X Construction Company will be subject to the compensating tax on the value of the tractor because it has used the property in New Mexico.
[3.2.1.30 NMAC - Rp, 3.2.1.30 NMAC 10/13/2021]
HISTORY OF 3.2.1 NMAC:
Pre-NMAC History:
BOR 67-2, NM Gross Receipts and Compensating Tax Regulations, September 1967, filed 9/29/1967.
BOR 69-4, Regulations in Effect and Pertaining to the New Mexico Gross Receipts and Compensating Tax Act, 12-5-69, filed 12/5/1969.
BOR 72-4, Regulations in Effect and Pertaining to the New Mexico Gross Receipts and Compensating Tax Act, 3/9/72, filed 3/9/1972.
BOR 74-2, Regulations in Effect and Pertaining to the New Mexico Gross Receipts and Compensating Tax Act, 12/15/73, filed 3/20/1974.
BOR 76-1, Regulations in Effect and Pertaining to the New Mexico Gross Receipts and Compensating Tax Act, 7/26/76, filed 7/26/1976.
R.D.79-1, Gross Receipts and Compensating Tax Act Regulations, filed 6/18/79.
R.D. Rule No. 82, Regulations Pertaining to the Gross Receipts and Compensating Tax Act, Sections 7-9-1 to 7-9-80.1 NMSA 1978, filed 4/7/1982.
R.D. Rule No. 84, Regulations Pertaining to the Gross Receipts and Compensating Tax Act, Sections 7-9-1 to 7-9-80.1 NMSA 1978, filed 5/4/1984.
TRD Rule No. 9-86, Regulations Pertaining to the Gross Receipts and Compensating Tax Act, Sections 7-9-1 to 7-9-80.1 NMSA 1978, filed 4/2/1986.
TRD Rule GR-90, Regulations Pertaining to the Gross Receipts and Compensating Tax Act, Sections 7-9-1 to 7-9-80.1 NMSA 1978, filed 11/26/1990.
History of Repealed
Material: 3.2.1 NMAC - Gross
Receipts Taxes - General Provisions (filed 4/17/2001) Repealed effective 10/13/2021.
NMAC History:
3 NMAC 2.1, Gross Receipts Taxes - General Provisions, filed 11/4/1996.
3.2.1 NMAC, Gross Receipts Taxes - General Provisions, filed 4/17/2001.
3.2.1 NMAC - Gross Receipts Taxes - General Provisions (filed 4/17/2001) replaced 3.2.1 NMAC - Gross Receipts Taxes General Provisions effective 10/13/2021.