Question:
What state taxes does a Canadian business pay in New Mexico?
Answer:
Sales Tax
The state sales tax rate in New Mexico is 5.125%. With local taxes, the total sales tax rate is between 5.125% and 9.25%. Sales tax in New Mexico applies to services along with tangible goods.
Use Tax
The state use tax rate in New Mexico is 5.125% on certain property use and 5% on certain services used.
Unemployment Insurance (Payroll Tax)
If you have employees working in New Mexico, you must pay unemployment taxes on their gross wages up to the taxable wage base ($25,800 as of 2020). The tax rate varies from 0.33%-5.4%.
Withholding (Payroll Tax)
If you have an employee earning income while in New Mexico, you must withhold a certain percentage of their income from each payroll. The amount of tax you withhold from an employee depends on the length of your pay period, the employee’s gross pay, and the number of withholding allowances/exemptions claimed on their W-4.
Corporate Income Tax
Corporate Income Tax rates range between 4.8% and 7.6% depending on gross taxable income. If your remote corporation’s (does not own land in New Mexico) gross sales remain under $100,000 and your only service is the selling of goods, you are not subject to pay corporate income tax. Instead, these corporations may pay an alternative tax of 0.75% of annual gross receipts from New Mexico.
Franchise Tax
New Mexico Corporate Franchise Tax is $50 per year or partial year.
If you remain under certain thresholds in this state, you are not responsible for taxes.
| Tax | Threshold |
|---|---|
| Sales | $100,000 |
| Use | $100,000 |
Availability of Treaty Benefits
Use taxes are often treated as income taxes by the Canadian government when calculating income in Canada and applying for foreign tax credits. Meaning, if you pay use tax in the USA but have no net profit, you will not benefit from a tax credit theoretically. The actual application is a bit more complex.
Income taxes in the USA are almost always treated as income taxes by the Canadian government. Thus, in the majority of cases, if you pay tax in the state, you don’t pay tax again in Canada unless the Canadian rate is higher.
If you would like more information on this topic, please contact a member of the Empire CPA team by filling out the contact form below.
Canadian and foreign tax laws are complex and have a tendency to change on a frequent basis. As such, the content published above is believed to be accurate as of the date of this post. Before implementing any tax planning, please seek professional advice from a qualified tax professional. Empire, Chartered Professional Accountants will not accept any liability for any tax ramifications that may result from acting based on the information contained above.
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