New Mexico Administrative Code
Title 3 - TAXATION
Chapter 2 - GROSS RECEIPTS TAXES
Part 301 - CREDIT - COMPENSATING TAX
Section 3.2.301.8 - LIMIT ON CREDIT

A. The credit under Section 7-9-79 NMSA 1978 cannot exceed the amount of compensating tax assessed by New Mexico on the property on which the out-of-state tax was paid, and excess amounts cannot be applied to other out-of-state purchases.

B. Example 1: Q, a New Mexico construction company, purchased a power unit in California for $50,000 and a trenching implement in Texas for $20,000. The sales tax rates applicable to the purchases were 5.5% in California and 3% in Texas. When bringing the equipment into New Mexico, a 5% compensating tax is imposed on Q. Q is allowed a credit for similar taxes paid in other states on the same property. The New Mexico compensating tax imposed on the California transaction is $2,500 ($50,000 x .05). Q paid $2,750 ($50,000 x .055) in California tax and therefore is entitled to a credit for the full amount of the New Mexico compensating tax. On the Texas transaction, the New Mexico compensating tax is $1,000 ($20,000 x .05). Q paid $600 ($20,000 x .03) in Texas tax and therefore the balance of the New Mexico tax liability on this transaction is $400 ($1,000 - $600). Q cannot use the excess credit on the California transaction to offset the balance of the liability on the Texas transaction.

C. Example 2: B, a machine company, buys a lathe in Texas for $50,000. The Texas sales tax is 6% at the time the purchase is made, and B pays $3,000 Texas sales tax. B uses the lathe in Texas for six years and then brings it into New Mexico to use in a new shop it is opening. The value of the lathe at the time it enters New Mexico is $25,000. The New Mexico compensating tax owed is $1,250 ($25,000 x .05). The maximum amount of tax credit allowed B will be $3,000. B, therefore, does not owe New Mexico compensating tax on its use of the lathe.