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New Mexico is one of only eight states that charges a gross receipts tax, which would include services. All other states charge a sales tax on product only, with services being taxed as income; in the case of a sole proprietor, this is considered personal income.
I lived, worked and did business in California for 22 years, during which time performance and teaching income was taxed as personal income, and any CD albums or books that I sold was subject to sales tax.
Personal business income is first worked out on the Federal Schedule C, and is allowed business expense deductions. The adjusted income, after expenses, is the amount subject to California State income tax. In New Mexico, services income is taxed as gross receipts at the full amount — no deductions.
At 7.0625 percent, I wind up paying more in taxes on what I would consider to be personal business income than I paid in California. This in a state that provides less government services than California.
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