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Part 2: Ten Tax Tips to Know When You Register a Business in New Mexico

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In Part 2 of our 4-part series, REDW covers an additional 3 of the 10 items to be aware of when registering a business in New Mexico.

  • Available credits: how to qualify; how to file; and how to utilize them.
  • What does nexus means?
  • What is apportionment, and why is it important to my business?

Now that you’ve really got your business off and running, you start to hear rumblings of words and phrases that aren’t entirely familiar to you.  What is this “nexus” I hear other business owners complaining about? What’s meant by “apportionment”? Why should I care?

Google’s definition of “nexus” is, “a connection or series of connections linking two or more things.”  The word “nexus,” however, has a more specific definition when it comes to tax law.  “Nexus” describes a situation where a business has a presence in a state and can then be subject to state income tax and/or sales tax within that state.  The key to remember is that each state in the U.S. has their own interpretation of what “nexus” is, and this definition may be different within a state for determining “nexus” for income tax purposes versus sales and use tax purposes. Sounds complicated… It is. Very.

Then, there’s that other word: “apportionment.” How does this word impact my tax situation? “Apportionment” is a factor used for business income tax reporting. If your business does work, selling tangibles or services, in more than one state, then generally, you’re required to “apportion” your income based on factors outlined by the states you’re doing business in. A percentage is calculated, and this rate is applied to the activity for your business, and is used to compute your state taxable income.

But, here’s a word that can make taxation a little better: “credits.” New Mexico has an absolute plethora of available tax credits, for income tax purposes, as well as gross receipts tax purposes. The High Wage Jobs Credit encourages hiring and job growth.  This credit can be used against all CRS (Combined Reporting System) taxes, and any unused credit is refundable in cash. The Investment Credit promotes capital equipment purchases by manufacturers, but does require a modest increase in employment on a year-over-year basis. This credit, too, can be used against CRS taxes. The Technology Jobs Credit is New Mexico’s version of the Federal Research and Development (R&D) credit. This credit has two parts, one that is used against CRS taxes and the other that is used against income tax. Neither the Investment Credit nor the Technology Jobs Credit are refundable; unused credit amounts are carried forward to be used in future periods.

Take-aways:

  1. “Nexus” means connection, and likely impacts your business in some way.
  2. It’s important to track your revenue sources by state.

Credits can be a good thing!

Bobbi Kay Nelson

Bobbi Kay Nelson

Bobbi Kay leads REDW’s State and Local Tax (SALT) practice. With over 25 years of public accounting experience, and as a former business owner, Bobbi Kay has become an expert in finding cost savings opportunities for clients of all sizes, industries, and complexities. By identifying and addressing sales and use tax compliance issues, income tax nexus prioritization, and optimal utilization of state and federal incentives and credits, she has generated millions of dollars in tax savings for the clients she serves.