SALT Report 3104 – The New Mexico Taxation and Revenue Department updated a bulletin that discusses the use of Type 6 nontaxable transaction certificates. The bulletin addresses the deduction from gross receipts tax that is available for sales of certain construction-related services, and leases of qualified construction equipment, under sections 7-9-52 and 7-9-52.1 NMSA 1978.
To qualify for the deduction the sale or lease must be made to a person engaged in the construction business, and billed to a single construction project. For the receipts to be deductible, the buyer must provide a Type 6 NTTC to the seller. If a Type 6 NTTC is not provided, then the receipts resulting from these transactions will be subject to the gross receipts tax.
In the case of leased construction equipment, the lessee who provides the Type 6 NTTC can only use the construction equipment at a location that is:
- Subject to gross receipts tax upon its completion,
- Subject to the gross receipts tax upon the sale in the ordinary course of business of the Real property upon which it was constructed, or
- Is located on the tribal territory of an Indian nation, tribe or pueblo
For purposes of this deduction, “construction-related services” includes services that are directly contracted for, or billed to, a specific construction project, such as design, architecture, drafting, surveying, engineering, environmental and structural testing, security, sanitation and services that are necessary to comply with certain government regulations. However, “construction-related services do not include general business services such as legal or accounting services, equipment maintenance, and real estate sales commissions.
Additionally, businesses with receipts from sales of construction-related services, or leases of construction equipment, may now accept the Type 6 NTTC for qualified deductible receipts under sections 7-9-52 and 7-9-52.1 NMSA 1978. However, this deduction is completely optional. Therefore, a seller may choose not to accept the Type 6 NTTC, which will result in the receipts from the sale or lease being fully taxable, and consequently, a pyramiding of the tax.
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