Compensating tax (Section 7-9-7 NMSA 1978) is an excise tax imposed on persons using tangible property, services, licenses or franchises in New Mexico
This tax is sometimes called a “use tax,” or “buyer pays.” Compensating tax helps to protect New Mexico businesses from unfair competition from out-of-state businesses that are not subject to gross receipts tax.
Compensating tax is imposed when a business or an individual uses tangible property, a service, a license or a franchise that was acquired as a result of a transaction with a person located outside the state that would have been subject to gross receipts tax if the seller had nexus in New Mexico. Compensating tax is also imposed on manufacturers who use property they manufacture. The compensating tax is imposed at a rate generally determined by the location where the property, service, license, or franchise is used, and is the same as the gross receipts tax rate for that location. More information on determining the reporting location for gross receipts tax may be found in the Publication FYI-230 Compensating Tax.
Compensating tax is reported on a Form TRD-41412 Compensating Tax Return and is due on or before the 25th day of the month following the report period in which the taxable transaction occurs.
This tax is deposited in the tax administration suspense fund at the state treasury. After necessary refunds and interest are paid, the state distributes 10% of receipts to the small cities assistance fund and 10% to the small counties assistance fund. The remainder goes to the general fund.