New Mexico Franchise Tax: Everything You Need to Know
New Mexico franchise tax is different from other states, as personal income tax rates and corporate income tax rates vary drastically from state to state.3 min read
New Mexico franchise tax is different from other states, as personal income tax rates and corporate income tax rates vary drastically from state to state. Corporate rates tend to be the flattest no matter what the amount of income. This often ranges from 4 percent to 10 percent. Personal rates can range anywhere from zero percent to more than 9 percent. These depend on the state and what the level of income is.
How Are Businesses in New Mexico Being Taxed?
The majority of states tax certain kinds of business incomes that are received from the state. Details regarding how the income from a particular business is taxed are determined by what the legal form of the company is. The majority of corporations must pay a corporate income tax. Income that comes from pass-through entities like limited liability companies, sole proprietorships, S-corporations, and partnerships, are subject to whatever the state tax is on individual income.
There are six states that don't have to pay corporate income tax: Ohio, Texas, Wyoming, Nevada, Washington, and South Dakota. However, Texas, Nevada, Washington, and Ohio have some type of gross receipts tax for corporations. Alaska, Florida, South Dakota, Washington, Nevada, Wyoming, and Texas don't have an individual income tax. Those who live in Tennessee and New Hampshire only get taxed on dividend income and interest.
What Other Taxes Are Imposed on Businesses in New Mexico?
In addition to taxing business income by a personal income tax or corporate income tax, a majority of states may have a different tax on some companies, called a privilege tax or franchise tax. That is often warranted as a tax imposed for conducting business in that state. Regarding state taxes for business income, the details of the franchise tax for a state are usually dependent partly on what the legitimate form of the company is. Franchise taxes tend to be either an amount that's based on the net worth of a business or a flat fee.
What Businesses Can Corporate and Franchise Tax Be Applied To?
There is a corporate income tax for New Mexico, which applies to C-type or traditional corporations. A franchise tax is also applied to S-corporations and traditional corporations. On top of this, if income from the company passes through to the owner specifically, that income is subjected to taxation on the owner's individual tax return for New Mexico.
New Mexico State Business Income Tax
The state of New Mexico taxes corporate income at different marginal rates. These rates and brackets have changed every year over the last six years. For 2018, the rates and brackets are 4.8 percent tax for a total net income that's under $500,000. For total net income that's over $500,000, it's $24,000 with an extra of 5.9 percent of the net income that's over $500,000.
New Mexico taxes all personal income at varying marginal rates that range from 1.7 percent to 4.9 percent. The state does allow specific corporations to pay tax on gross receipts from New Mexico instead of income. However, the corporation needs to meet the following requirements:
- The only activities for the corporation are sales in New Mexico.
- The corporation doesn't rent or own real estate in the state.
- The yearly gross sales for the corporation into or in New Mexico are $100,000 or less.
Corporations that match these conditions need to pay an alternative tax that's 0.75 percent of yearly gross receipts from New Mexico. The franchise tax is a flat yearly fee of $50 that is required to be paid by every corporation in New Mexico, including S-corporations. Both the franchise tax and corporate income tax must be paid by the 15th day on the fourth month following the company's tax year. Any corporation in the state is subject to the franchise tax and corporate income tax of New Mexico.
As an example, if a corporation in New Mexico had a net income that was $600,000 in 2018, the corporation would owe $29,900 in New Mexico corporate income tax. This is calculated by taking $24,000 plus 5.9 percent of the net income. They would also owe a $50 franchise tax fee.
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