New Mexico Administrative Code
Title 3 - TAXATION
Chapter 2 - GROSS RECEIPTS TAXES
Part 10 - IMPOSITION AND RATE OF TAX - DENOMINATION AS "COMPENSATING TAX"
Section 3.2.10.12 - PROMOTIONAL GIFTS

A. If a taxpayer uses merchandise for advertising or promotional purposes by giving away the merchandise without the requirement of a concurrent purchase, the taxpayer is liable for the compensating tax on the value of the merchandise if the merchandise was acquired by the taxpayer in a transaction which was not subject to the gross receipts tax because the taxpayer furnished a nontaxable transaction certificate to the supplier pursuant to Section 7-9-47 NMSA 1978 or because the taxpayer acquired this merchandise outside New Mexico.

B. If a taxpayer "gives away" merchandise or services with a requirement of a concurrent purchase, no compensating tax is due on the merchandise or service "given away".

C. Example: X Restaurant gives a free drink to Y, a customer, on Y's birthday. The restaurant is not subject to the compensating tax on the value of the free drink if the drink is only given when there is a requirement of a concurrent purchase. If there is no requirement of a concurrent purchase, then the restaurant is liable for the compensating tax on the value of the drink if the liquor was acquired by the restaurant in a transaction which was not subject to the gross receipts tax because the restaurant furnished a nontaxable transaction certificate to its supplier pursuant to Section 7-9-47 NMSA 1978, because of the operation of Section 7-9-43.1 NMSA 1978 or because the taxpayer acquired the merchandise outside New Mexico. When restaurants or cocktail lounges promote their business by offering one free drink to a customer for every drink purchased, the restaurant or lounge is not subject to the compensating tax on the value of the free drink. In this situation, the drinks are only "given away" when there is a requirement of a concurrent purchase.