{"id":8989,"date":"2016-12-18T18:00:47","date_gmt":"2016-12-19T01:00:47","guid":{"rendered":"http:\/\/financenewmexico.org\/?p=8989"},"modified":"2016-12-12T10:39:11","modified_gmt":"2016-12-12T17:39:11","slug":"tax-on-out-of-state-business-purchases-aims-to-keep-new-mexico-competitive","status":"publish","type":"post","link":"https:\/\/financenewmexico.org\/sandbox\/articles\/general-business-advice\/tax-on-out-of-state-business-purchases-aims-to-keep-new-mexico-competitive\/","title":{"rendered":"Tax on Out-of-State Business Purchases Aims to Keep New Mexico Competitive"},"content":{"rendered":"
\"Compensating<\/a>

By Finance New Mexico<\/p><\/div>\n

Lots of New Mexico business owners don\u2019t realize they\u2019re required to pay a \u201ccompensating tax\u201d for business-related purchases they make on the internet or in a state that doesn\u2019t charge sales tax.<\/p>\n

Some know they\u2019re supposed to but they ignore it, assuming the state will never discover the nonpayment.<\/p>\n

Most of the time, that\u2019s a safe assumption because the state can\u2019t monitor everything a business does. But it\u2019s risky, nevertheless, because an audit could uncover the nonpayment and this discovery could result in a hefty fine \u2014 especially if the business acquires much of its raw materials from out of state, depriving New Mexico of significant tax revenue.<\/p>\n

Evening the Playing Field<\/strong><\/p>\n

The compensating tax is a \u201cuse\u201d tax that\u2019s imposed on the value of property that a company acquires from an out-of-state business \u2014 typically through an internet-based vendor \u2014 that would have been subject to the gross receipts tax (GRT) if it have been purchased in New Mexico. It doesn\u2019t apply to purchases made by individuals for personal use.<\/p>\n

Businesses are required to report such purchases on the New Mexico Tax & Revenue Department\u2019s combined reporting system \u2014 the same place they report and pay GRT \u2014 and they\u2019re supposed to pay 5.125 percent for goods and 5 percent for services. If the business paid sales taxes to the vendor\u2019s state, that amount can be deducted from what the business would owe New Mexico, and if the business paid more than New Mexico\u2019s top GRT rate of 5.125 percent, the compensating tax would be waived.<\/p>\n

From the state\u2019s perspective, when a business evades this tax, it\u2019s giving a competitive advantage to companies from states that don\u2019t assess gross receipts or sales taxes and thus undermining economic development at home. It also deprives the state\u2019s general fund of vital revenue and shrinks the funds the state uses to help small cities and counties.<\/p>\n

Businesses that follow the law contribute $47 million to the state\u2019s annual revenues. While that\u2019s a fraction of New Mexico\u2019s total tax revenue, it might be more significant if all businesses \u2014\u00a0especially those that source much of their raw materials out of state \u2014 declared and paid taxes on eligible purchases.<\/p>\n

It\u2019s hard for the state to know what it might be missing out on, according to Richard Anklam, president and executive director at the New Mexico Tax Research Institute, because compliance is \u201cvoluntary,\u201d just as it is for reporting GRT. Businesses are required to pay the tax, but it\u2019s up to them to initiate that process.<\/p>\n

Cost of Getting Caught <\/strong><\/p>\n

Getting the best deal on the purchase of office equipment, furnishings and supplies makes business sense, and it\u2019s understandably tempting to buy from a seller that doesn\u2019t add sales taxes or GRT to the final bill.<\/p>\n

While tax officials don\u2019t have the resources to track such purchases by businesses or to enforce the law before the fact, when they audit a business they suspect of GRT tax evasion, they also check for compliance with the compensating-tax law.<\/p>\n

\u201cThe biggest offenders are small businesses,\u201d Anklam said, either because they don\u2019t understand the compensating tax or don\u2019t believe it applies to them.<\/p>\n

For more information about this tax and the products and services it applies to, visit http:\/\/www.tax.newmexico.gov\/Businesses\/compensating-tax.aspx<\/a>.<\/p>\n

Download 481_tax-on-out-of-state-business-purchases-aims-to-keep-new-mexico-competitive<\/a> PDF<\/p>\n","protected":false},"excerpt":{"rendered":"

Lots of New Mexico business owners don\u2019t realize they\u2019re required to pay a \u201ccompensating tax\u201d for business-related purchases they make on the internet or in a state that doesn\u2019t charge sales tax. Some know they\u2019re supposed to but they ignore … Continue reading →<\/span><\/a><\/p>\n","protected":false},"author":6,"featured_media":0,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":[],"categories":[9],"tags":[],"_links":{"self":[{"href":"https:\/\/financenewmexico.org\/sandbox\/wp-json\/wp\/v2\/posts\/8989"}],"collection":[{"href":"https:\/\/financenewmexico.org\/sandbox\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/financenewmexico.org\/sandbox\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/financenewmexico.org\/sandbox\/wp-json\/wp\/v2\/users\/6"}],"replies":[{"embeddable":true,"href":"https:\/\/financenewmexico.org\/sandbox\/wp-json\/wp\/v2\/comments?post=8989"}],"version-history":[{"count":4,"href":"https:\/\/financenewmexico.org\/sandbox\/wp-json\/wp\/v2\/posts\/8989\/revisions"}],"predecessor-version":[{"id":8995,"href":"https:\/\/financenewmexico.org\/sandbox\/wp-json\/wp\/v2\/posts\/8989\/revisions\/8995"}],"wp:attachment":[{"href":"https:\/\/financenewmexico.org\/sandbox\/wp-json\/wp\/v2\/media?parent=8989"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/financenewmexico.org\/sandbox\/wp-json\/wp\/v2\/categories?post=8989"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/financenewmexico.org\/sandbox\/wp-json\/wp\/v2\/tags?post=8989"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}