SALT Report 2162 – The New Mexico Taxation Department issued a Revenue Ruling regarding the taxability of software licenses sold in New Mexico. The Taxpayer in this case, provides its customers with access to an online database when they purchase a software subscription. The subscription allows the customer to collect data and generate reports so long as they reference the Taxpayer in any published research.
The Taxpayer requested guidance regarding the application of the gross receipts tax to the following services:
- Sales of subscriptions to web-based tools that compile and analyze labor and employment data, and
- Fees from consulting services
In its ruling, the Department referred to regulation 126.96.36.199 NMAC which states that “licenses are intangible property and receipts from selling licenses are not deductible under Section 7-9-54 NMSA 1978.” Based on the facts presented, the Department determined that the Taxpayer is in the business of selling licenses to its customers so that they can access data and software online. To determine whether these sales are subject to the gross receipts tax the Department must determine where the license will be used.
Section 7-9-3.3 NMSA 1978 provides that there is an assumption that when a customer purchases a software license they will use it at the location in which their Internet access exists. If this location is in New Mexico then it is presumed that the location of the license is also in New Mexico. Accordingly, any software license sales to customers in New Mexico are considered taxable sales of intangible property and must be included in the gross receipts.
Additionally, receipts that are associated with consulting services constitute receipts from the performance of a service which is also taxable under Section 7-9-13.1 NMSA 1978. Therefore, if the Taxpayer performs a service or any part of a service in New Mexico, the fees associated with those services will be subject to the gross receipts tax. However, receipts from selling services that are performed outside New Mexico are exempt even if the product of the service is initially used in New Mexico.
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