Key Takeaways

  • New Mexico does not impose a franchise tax on LLCs. Only corporations (C-corps and S-corps) are subject to the $50 annual franchise tax.
  • LLCs in New Mexico benefit from pass-through taxation, meaning profits are taxed at the individual member level rather than at the business entity level.
  • The state’s gross receipts tax (GRT) acts as a form of sales tax and applies to most business transactions, including services.
  • New Mexico LLC taxes may include personal income tax for members, gross receipts tax, federal self-employment taxes, and applicable federal income taxes.
  • No annual report filing is required for New Mexico LLCs, which reduces compliance burdens compared to many other states.

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.

How New Mexico LLC Taxes Work

Limited liability companies (LLCs) in New Mexico enjoy pass-through taxation, meaning the business itself does not pay federal income tax. Instead, profits and losses are passed through to the LLC owners (members), who report this income on their personal tax returns. New Mexico treats LLCs as pass-through entities by default for state tax purposes as well.

However, an LLC can elect to be taxed as a corporation by filing IRS Form 8832. If this election is made, the LLC may become subject to New Mexico’s corporate income tax and franchise tax.

Key points about New Mexico LLC taxes:

  • No franchise tax for LLCs unless the LLC elects corporate tax treatment.
  • Personal income tax applies to LLC members on their share of the business income.
  • Federal self-employment tax applies to LLC members for their share of profits (unless taxed as a corporation).
  • Gross receipts tax (GRT) may apply if the LLC sells goods or provides services in New Mexico.

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.

Understanding New Mexico’s Gross Receipts Tax for LLCs

Instead of a traditional sales tax, New Mexico imposes a gross receipts tax (GRT) on most business transactions, including services and sales of goods. This tax applies to the total amount of money received from sales within the state, not just the profit.

Key features of the New Mexico GRT:

  • The statewide base GRT rate is 5.0%, but local jurisdictions may impose additional rates, bringing the total to anywhere between 5% and over 9% depending on the location.
  • Most services are taxable under the GRT, unlike traditional sales tax systems that usually focus on tangible goods.
  • Businesses must register with the New Mexico Taxation and Revenue Department (TRD) to collect and remit GRT.
  • If the LLC has no physical presence but has economic nexus (e.g., by selling into the state over a certain threshold), it may still owe GRT.

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.

Franchise Tax Requirements for New Mexico Corporations

In New Mexico, franchise tax applies only to corporations, including both C corporations and S corporations. LLCs that remain taxed as pass-through entities are not subject to this tax.

Details of the New Mexico franchise tax:

  • The franchise tax is a flat $50 annual fee for corporations.
  • Corporations must pay both franchise tax and corporate income tax (if applicable).
  • The due date for franchise tax payment is the 15th day of the fourth month after the close of the corporation’s fiscal year.
  • LLCs taxed as corporations must also pay this fee.

LLCs that do not elect corporate taxation are exempt from franchise tax but must still comply with GRT and personal income tax obligations for members.

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.

Additional Considerations for New Mexico LLC Taxes

Besides state taxes, New Mexico LLC owners should be aware of other tax-related obligations:

  • Federal Self-Employment Tax: LLC members may owe 15.3% self-employment tax on their share of business income for Social Security and Medicare.
  • Federal Income Tax: Profits distributed to members are reported on their personal federal returns using Schedule C (for single-member LLCs) or Schedule K-1 (for multi-member LLCs).
  • Registered Agent Requirement: All LLCs in New Mexico must maintain a registered agent with a physical address in the state.
  • No Annual Report Requirement: Unlike many states, New Mexico does not require LLCs to file an annual report, helping reduce administrative burdens and costs.

Carefully structuring your business and understanding New Mexico LLC taxes can help optimize tax outcomes and avoid penalties.

Frequently Asked Questions

  1. Does New Mexico impose franchise tax on LLCs?
    No, New Mexico does not impose a franchise tax on LLCs unless they elect to be taxed as corporations. The franchise tax applies to corporations only.
  2. How are LLC profits taxed in New Mexico?
    LLC profits are taxed at the member level through New Mexico's personal income tax. There is no separate entity-level state tax for LLCs unless they elect corporate taxation.
  3. What is the gross receipts tax rate for LLCs in New Mexico?
    The statewide base gross receipts tax rate is 5.0%, but local taxes can increase the total rate to over 9%, depending on the jurisdiction.
  4. Do New Mexico LLCs need to file an annual report?
    No, New Mexico LLCs are not required to file annual reports, which is one of the advantages of forming an LLC in the state.
  5. Can an LLC in New Mexico elect corporate tax treatment?
    Yes, an LLC can choose to be taxed as a corporation by filing IRS Form 8832. In that case, the LLC would become subject to corporate income tax and franchise tax in New Mexico.

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