New Mexico sales tax guide for SaaS businesses

Is SaaS taxable in New Mexico?

In an increasingly digital world, understanding the tax implications of software as a service (SaaS) is essential for businesses operating in various states.

New Mexico taxes SaaS and most digital products and services. New Mexico is also one of the few states that also taxes a wide variety of people services, including professional services and training.

By staying informed about the state’s tax regulations and working with a tax professional, businesses can ensure they are compliant and avoid any potential penalties or fines.

How to determine if your product is taxable in New Mexico

Navigating tax regulations can be tricky, particularly when trying to distinguish if a digital product is taxable. To determine if your SaaS product is taxable in New Mexico, consider your product’s specific functionality to ensure you’re accurately classifying it under state law.

Once you’ve determined your product’s appropriate tax category, you must understand whether you have sales tax nexus in New Mexico. Nexus is a connection or presence within a state that obligates a company to adhere to sales tax regulations.

In New Mexico, some factors that can create nexus include:

• Having a physical location (e.g., office, store, or warehouse) within the state.
• Employing people in the state.
• Having inventory stored in the state, even if it’s through a third-party fulfillment service.
• Exceeding $100,000 in sales within the state in a calendar year.

If your business meets any of these criteria, you could be required to collect and remit sales tax in New Mexico.

Sales tax compliance in New Mexico

Businesses with taxable products and nexus in New Mexico must ensure they adhere to the following sales tax compliance requirements:

• Register for a sales tax permit: All businesses with nexus in New Mexico must register for a sales tax permit.
• Collect sales tax: Once you have your sales tax permit, you need to collect the appropriate amount of sales tax on taxable transactions, including any taxable SaaS products and digital goods.
• File sales tax returns: Businesses must file periodic sales tax returns, typically on a monthly, quarterly, or annual basis, depending on the sales volume. When filing the return, you need to report the total sales and taxable sales, as well as the sales tax collected during the reporting period.
• Remit collected sales tax: Along with filing your sales tax return, you must also remit the collected sales tax to the state. Failure to do so could result in penalties and interest charges.

Being aware of your tax obligations and staying compliant with state laws will ensure the smooth functioning of your business and prevent unnecessary penalties or complications in the future.