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Albuquerque, New Mexico, United States
I specialize in helping businesses deal with New Mexico (NM) gross receipts tax (GRT). The name alone can be confusing because GRT is really sales tax. All businesses doing business in NM are subject to GRT. Even a business located outside of NM is doing business in NM if they sell to customers in NM. What trips up many businesses who don't think GRT applies to them is that GRT applies to the sale of services, not just things, as is common in other states. This means independent contractors, sometimes called 1099 employees, are subject to GRT. Audits are common when businesses don't register with and report their total gross receipts to the NM Taxation & Revenue Dept. All gross receipts must be reported but some are not taxable. They are known as exemptions and deductions. The word “deductions” is another source of confusion because it doesn’t mean the same thing as business expense deductions on an income tax return. The non-taxable gross receipts are handled on the GRT report so that they are not taxes. Contact me through my website, www.LarryHesscpa.com if you would like to know more. I offer virtual and phone consultations for a reasonable cost.

Tuesday, January 30, 2024

I received a letter telling me I owe gross receipts tax for prior years. What's this all about?

The letter is usually called Notice of Intent to Assess Gross Receipts Tax. It means you're being audited. It does not mean you already owe the tax.

How did this happen?

​This situation came about because the N.M. Taxation & Revenue Dept. (TRD) has received from the IRS the sales you reported on federal Schedule C as a sole proprietor plus sales your customers reported to the IRS on Forms 1099. The TRD compared the IRS information to the sales you reported for gross receipts tax. If the amount reported to TRD is less than the information they got from the IRS, the TRD sees an apparent underpayment of GRT and opened the audit.

Common circumstances that cause the mismatch​

  • The business did not register with the TRD. 
  • The business registered but did not file GRT reports.
  • The business did not do its homework. If it had, it would have discovered the requirements for business's doing business in New Mexico to report their gross receipts and pay gross receipts tax. 
  • The business in located outside of New Mexico and has customers in New Mexico. 
  • The business is operated by individuals who moved to New Mexico and are not familiar with the GRT.
  • The business did not report sales that are not subject to GRT.​

If you don't respond to the letter

​The audit letter gives you 60 days in which to provide the department proof that some of your gross receipts are not subject to gross receipts tax. If you don't respond, the department will make the tax a legal debt (called an assessment).

​Along with the audit letter there will be an offer for you to participate in a Managed Audit and avoid penalties and interest.

 

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