Have you ever tried to explain New Mexico Gross Receipts Tax (GRT) to a business person not from New Mexico? They just don’t get it. This is especially true for businesses who do business with the federal government. Mention GRT, and they’ll tell you they have an exemption from charging sales tax to the federal government. It is a completely foreign concept. In other states, they have sales, and you can’t charge the federal government sales tax. That’s why we have gross receipts tax in New Mexico. So much of our eco0nmy is based on federal dollars that the State had to figure out a creative way to collect taxes on that exchange of dollars.
But, what about those out of state companies that do business with federal agencies in New Mexico? Do they know they have a GRT liability. I’m willing to bet the vast majority of them don’t. In fact, if they’re bidding against a New Mexico company for work at a federal facility in New Mexico, they’ve got a built in competitive advantage. You see, out of state companies have the lowest GRT rate in the state. In some case that advantage can translate into a 3% difference. Don’t believe me, download the tax rate table and see for yourself.
Now, that assumes that the out of state company is registered to do business in New Mexico and is actually paying GRT, which I believe would actually be the exception rather than the rule. In fact, if they’re not factoring in GRT, they may find themselves with 8% or greater competitive edge over their New Mexico competitors. Just in case some of you might think I’m making this up, let’s just take a look at a recently awarded federal contract:
Title: Tower Relocation Project
Sol. #: AG-7512-S-10-0036
Agency: Department of Agriculture
Office: Forest Service
Location: R-3 Southwestern Region/Lincoln NF
Posted On: Jan 11, 2011 4:49 pm
Current Type: Award
Base Type: Presolicitation
Base Posting Date: Aug 10, 2010 4:54 pm
Click the link, and you’ll find this $29,500 contract was awarded to Jim and Martha Flake of Clarksville, Tennessee. I don’t know the Flakes, and I’m sure they are hardworking people. But what I do know is that a quick search on the Corporations page at the NM PRC, doesn’t show them registered to do business in New Mexico. So, if they’re not even registered to do business in the State of New Mexico, does anyone believe they are actually going to pay GRT?
Yeah, me neither.
So, here’s a revenue generating idea for the good folks in Tax and Rev: Start monitoring which out-of-state firms are winning federal contracts in New Mexico, and while you’re at it, maybe you want to use some of the free tools available to figure out which of those firms that have won contracts in the Land of Enchantment in the past have actually paid the GRT that New Mexico contractors have to pay.
Just a thought.