Current through Register Vol. 35, No. 18, September 24, 2024
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.
