2024 New Mexico Statutes
Chapter 7 - Taxation
Article 9 - Gross Receipts and Compensating Tax
Section 7-9-7 - Imposition and rate of tax; denomination as "compensating tax".
A. For the privilege of making taxable use of tangible personal property in New Mexico, there is imposed on the person using the property an excise tax equal to five percent prior to July 1, 2023 and four and seven-eighths percent beginning July 1, 2023, except as provided in Subsection G of this section, of the value of tangible property that was:
(1) manufactured by the person using the property in the state; or
(2) acquired in a transaction for which the seller's receipts were not subject to the gross receipts tax.
B. For the purpose of Subsection A of this section, value of tangible personal property shall be the adjusted basis of the property for federal income tax purposes determined as of the time of acquisition or introduction into this state or of conversion of the property to taxable use, whichever is later. If no adjusted basis for federal income tax purposes is established for the property, a reasonable value of the property shall be used.
C. For the privilege of making taxable use of a license or franchise in New Mexico, there is imposed on the person using the license or franchise an excise tax equal to the rate provided in Subsection A or G of this section, as applicable, against the value of the license or franchise in its use in this state. The department by rule, ruling or instruction shall fairly apportion, where appropriate, the value of a license or franchise to its value in use in New Mexico. The tax shall apply only to the value of a license or franchise used in New Mexico where the license or franchise was acquired in a transaction the receipts from which were not subject to the gross receipts tax.
D. For the privilege of making taxable use of services in New Mexico, there is imposed on the person using the services an excise tax equal to the rate provided in Subsection A or G of this section, as applicable, against the value of the services at the time the services were performed or the product of the service was acquired. For use of services to be a taxable use pursuant to this subsection, the services shall have been acquired in a transaction the receipts from which were not subject to the gross receipts tax.
E. For purposes of this section, receipts are not subject to the gross receipts tax if the person responsible for the gross receipts tax on those receipts lacked nexus in New Mexico or the receipts were exempt or allowed to be deducted pursuant to the Gross Receipts and Compensating Tax Act.
F. The tax imposed by this section shall be referred to as the "compensating tax".
G. If the gross receipts tax is increased to five and one-eighth percent pursuant to Subsection C of Section 7-9-4 NMSA 1978, the rate of the compensating tax shall be five and one-eighth percent.
H. As used in this section, "taxable use" means use by a person who acquires tangible personal property, a license, a franchise or a service, and the use of which would not have qualified for an exemption or deduction pursuant to the Gross Receipts and Compensating Tax Act.
History: 1953 Comp., § 72-16A-7, enacted by Laws 1966, ch. 47, § 7; 1969, ch. 144, § 3; 1978, ch. 151, § 3; 1981, ch. 37, § 10; 1983, ch. 213, § 16; 1986, ch. 20, § 64; 1990 (1st S.S.), ch. 1, § 4; 1993, ch. 31, § 2; 1995, ch. 50, § 1; 2010 (2nd S.S.), ch. 7, § 10; 2011, ch. 175, § 1; 2019, ch. 270, § 30; 2021, ch. 65, § 12; 2022, ch. 47, § 13.
ANNOTATIONSThe 2022 amendment, effective July 1, 2022, reduced the rates of the compensating tax, provided for an increase in the compensating tax if gross receipts tax revenues decrease; in Subsection A, after "tax equal to five", deleted "and one-eighth", and added "prior to July 1, 2023 and four and seven-eighths percent beginning July 1, 2023, except as provided in Subsection G of this section"; in Subsections C and D, after "provided in Subsection A", added "or G"; and added a new Subsection G and redesignated former Subsection G as Subsection H.
The 2021 amendment, effective July 1, 2021, clarified language related to excise taxes on the use of personal property, on the use of a license or franchise, and on the use of certain services; in Subsection A, after "privilege of", deleted "using" and added "making a taxable use of", and after "tangible", added "personal", in Paragraph A(2), after "acquired", deleted "inside or outside of this state as the result of a transaction with a person located outside this state that would have been subject to the gross receipts tax had the tangible personal property been acquired from a person with nexus with New Mexico" and added "in a transaction for which the seller's receipts were not subject to the gross receipts tax"; in Subsection B, after "tangible", added "personal", after "conversion", added "of the property", and after "to", added "taxable"; in Subsection C, after "privilege of", deleted "using" and added "making taxable use of", after "in use in New Mexico", deleted "For use of a license or franchise to be taxable under this subsection, the value of the license or franchise shall be acquired inside or outside this state as the result of a transaction with a person located outside this state that would have been subject to the gross receipts tax had the license or franchise been acquired from a person with nexus with this state" and added the remainder of the subsection; in Subsection D, after "privilege of", deleted "using" and added "making taxable use of", after "at the time", added "the services were performed", after "services to be", deleted "taxable under" and added "a taxable use pursuant to", and after "shall have been", deleted "performed by a person outside this state and the product of the service was acquired inside or outside this state as the result of a transaction with a person located outside this state that would have been subject to the gross receipts tax had the service or product of the service been acquired from a person with nexus with this state" and added "acquired in a transaction the receipts from which were not subject to the gross receipts tax"; added new Subsection E and redesignated former Subsection E as Subsection F; and added Subsection G.
The 2019 amendment, effective July 1, 2021, provided an excise tax for the privilege of using a license or franchise in New Mexico, and increased the excise tax rate for the privilege of using services in New Mexico; in Subsection A, deleted Paragraph A(3); added a new Subsection C and redesignated former Subsections C and D as Subsections D and E, respectively; and in Subsection D after "tax equal to", deleted "five percent of" and added "the rate provided in Subsection A of this section against", and after "services shall have been", deleted "rendered as a result of a transaction that was not initially subject to the gross receipts tax but which transaction, because of the buyer's subsequent use of the services, should have been subject to the gross receipts tax", and added the remainder of the subsection.
The 2011 amendment, effective June 17, 2011, imposed the compensating tax on property acquired inside or outside New Mexico.
The 2010 (2nd S.S.) amendment, effective July 1, 2010, in Subsection A, in the introductory sentence, added "and one-eighth"; and in Subsection A(2), after "acquired", added "as a result of a transaction with a person located"; after "outside this state", deleted "as the result of a transaction"; and after "gross receipts tax had", deleted "it occurred within this state" and added the remainder of the sentence.
The 1995 amendment, effective July 1, 1995, designated the former second paragraph of Subsection A as Subsection B and rewrote the provision which read "For the purpose of this subsection Value of tangible property shall be determined as of the time of acquisition or introduction into this state or of conversion to use, whichever is later", and redesignated former Subsections B and C as Subsections C and D.
The 1993 amendment, effective July 1, 1993, in Subsection A, inserted "tangible" preceding "property" in three places and substituted "using the property" for "using property" in the introductory paragraph.
The 1990 amendment, effective July 1, 1990, substituted "five percent" for "four and three-fourths percent" in the introductory paragraph of Subsection A and in the first sentence of Subsection B.
Distribution of sales catalogues. — Where the taxpayer sold computers by mail, telephone, and internet orders from its facilities in Texas to New Mexico customers; the taxpayer created, printed and prepared catalogues outside New Mexico and mailed the catalogues from outside New Mexico to potential New Mexico customers; and the taxpayer retained the right to determine where and how the catalogues were distributed in New Mexico, the taxpayer's distribution of sales catalogues in New Mexico constituted a use of the catalogues in New Mexico and was subject to the compensating tax. Dell Catalog Sales, L.P. v. Taxation and Revenue Dept., 2009-NMCA-001, 145 N.M. 419, 199 P.3d 863, cert. denied, 2008-NMCERT-007, cert. denied, 129 S. Ct. 1616, 173 L.Ed.2d 1030.
The use or compensating tax is an excise tax and not an ad valorem tax. Robert E. McKee, Gen. Contractor Inc. v. Bureau of Revenue, 1957-NMSC-082, 63 N.M. 185, 315 P.2d 832 (decided under former law).
Any reasonable tax classification constitutional. — It is for the legislature to adopt classifications for the imposition of excise taxes as it may deem proper and any reasonable classification cannot be held to deny equal protection or due process. Edmunds v. Bureau of Revenue, 1958-NMSC-112, 64 N.M. 454, 330 P.2d 131 (decided under former law).
"Compensating tax" and nontaxable transaction certificates. — This section is designed to impose a compensating tax on transactions such as one which initially would have been subject to the gross receipts tax were it not for the delivery of the nontaxable transaction certificates by the buyer of the materials or services pursuant to Sections 7-9-51 or 7-9-52 NMSA 1978. Continental Inn of Albuquerque, Inc. v. N.M. Taxation & Revenue Dep't, 1992-NMCA-030, 113 N.M. 588, 829 P.2d 946.
Use of nontaxable transaction certificates. — The use of nontaxable transaction certificates, not the taking of the deduction, subjects a taxpayer to the compensating tax. Continental Inn of Albuquerque, Inc. v. N.M. Taxation & Revenue Dep't, 1992-NMCA-030, 113 N.M. 588, 829 P.2d 946.
Intangible property not subject to tax. — Laws 1993, Chapter 31, § 2 amended the definition of property in compensating tax provisions so that it does not include intangible property. Kmart Corp. v. N.M. Taxation & Revenue Dep't., 2006-NMSC-006, 139 N.M. 172, 131 P.3d 22
Foreign transaction subject to tax if receipts tax would apply to domestic. — Supreme court, although finding no need to interpret this section in the disposition of the case before it, indicated that this section appeared to impose a compensating or use tax on property acquired out-of-state in an isolated transaction and used in New Mexico only where the transaction would have been subject to a gross receipts tax if the transaction had taken place in New Mexico. Union Cnty. Feedlot, Inc. v. Vigil, 1968-NMCA-088, 79 N.M. 684, 448 P.2d 485.
Tax applicable to reimbursements for property used under government contracts. — Application of the compensating tax to reimbursements for property purchased out-of-state and brought into New Mexico for use under government contracts was valid. United States v. New Mexico, 581 F.2d 803 (10th Cir. 1978), aff'd, 455 U.S. 720, 102 S. Ct. 1373, 71 L. Ed. 2d 580 (1982).
Transportation costs excluded from sales price when paid by buyer. — Under a regulation promulgated by the bureau (now department), in computing the compensating tax, transportation costs should be excluded from the sales price of the property when paid to the carrier by the buyer. Thus, when, under the sales contract between the taxpayer (manufacturer) and the buyer, an agency relationship existed whereby the taxpayer was authorized to pay transportation charges both on materials sold to the buyer and on materials returned by it for credit or repair, the regulation specifically excluded from the sales price of the property the transportation costs, which were paid to the carrier by the buyer, since the buyer reimbursed the manufacturer for transportation costs. Western Elec. Co. v. N.M. Bureau of Revenue, 1976-NMCA-047, 90 N.M. 164, 561 P.2d 26.
Effect of buyer's voluntary payment of tax. — A corporation engaged in the business of selling property in New Mexico was liable for payment of the state's gross receipts tax on the receipts of sales. The voluntary payment of compensating tax by the buyer did not relieve the seller of liability for the gross receipts tax otherwise collectible. Proficient Food Co. v. N.M. Taxation & Revenue Dep't, 1988-NMCA-042, 107 N.M. 392, 758 P.2d 806, cert. denied, 107 N.M. 308, 756 P.2d 1203.
Contractor furnishing purchased materials to federal government liable for tax. — Since general contractor was required by contracts with federal government to furnish materials to be used on federal reservation in New Mexico, the contractor purchased the materials, became the owner thereof, and was liable for the use or compensating tax under § 72-17-1, 1953 Comp. et seq. (now repealed); and this was not taxation of government land or other government property. Robert E. McKee, Gen. Contractor, Inc. v. Bureau of Revenue, 1957-NMSC-082, 63 N.M. 185, 315 P.2d 832.
Existence of promissory note does not make sale executory. — When purchase agreement was entered into out-of-state whereby purchaser would pay a deposit and make a promissory note for the balance, the agreement was not an executory document and failure to make any of the subsequent payments after the deposit did not render it executory. Therefore, the use of the article purchased was taxable pursuant to Subsection A(2). Garfield Mines, Ltd. v. O'Cheskey, 1973-NMCA-128, 85 N.M. 547, 514 P.2d 304.
Distribution of advertising materials. — New Mexico retailer who contracted with out-of-state advertising coordinators, but exercised control over its distribution contractors in New Mexico, "used" advertising materials distributed in the state within the meaning of this section. Phillips Mercantile Co. v. N.M. Taxation & Revenue Dep't, 1990-NMCA-006, 109 N.M. 487, 786 P.2d 1221.
Am. Jur. 2d, A.L.R. and C.J.S. references. — Sales or use tax upon containers or packaging materials purchased by manufacturer or processor for use with goods he distributes, 4 A.L.R.4th 581.
Sales and use taxes on sale or lease of mailing or customer list, 80 A.L.R.4th 1126.
