New Mexico – Company Liable for Tax on Subcontracted Services

SALT Report 1651 – The New Mexico Taxation and Revenue Department ruled that a Taxpayer who operates a floor maintenance company was liable for New Mexico gross receipts taxes on jobs they subcontracted because the Taxpayer was unable to obtain a Type 5 Nontaxable Transaction Certificate from his subcontractor in a timely manner.
New Mexico provides a deduction for certain subcontracting services under NMSA 1978, Section 7-9-48 which states, “Receipts from selling a service for resale may be deducted from gross receipts…if the sale is made to a person who delivers a nontaxable transaction certificate to the seller.”
In order to qualify for the deduction, the seller claiming the deduction must obtain an NTTC from the buyer at the time the tax return for the receipts in question are due.  Consequently, if a seller does not provide the Department with an NTTC along with their return or within 60 days from the date that the Department requests the NTTC any deductions claimed by the seller will be rejected.
In this case, the Department notified the Taxpayer that he had 60 days to obtain an NTTC from his subcontractor. The Taxpayer was unable to obtain the NTTC until well after the 60-day deadline.  As a result the Taxpayer’s request for the deduction was denied and he was fined more than $8850.00 in penalties and interest. The interest will continue to accrue until the tax is paid pursuant to NMSA 1978 Section 7-1-67.
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