- Special Sections
- Public Notices
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.
Since I have long been in the habit of charging sales tax only on product, here in New Mexico I have never charged tax to folks on performance or teaching services. I still don’t, nor do I intend to in future. But, I still have to pay the tax. Twice. Because not only do I pay the tax on income in the form of gross receipts, I also pay it again when I make any purchases.
Thus, an increase in GRT is going to result in a reduction of my personal disposable income whilst increasing my cost of living, thereby reducing my over-all purchasing power. I am not alone in this. Sole proprietors providing a service are all subject to this. Most have small businesses and their income goes to pay their basic living expenses.
Most are just folks trying to get by. Yet the money they earn to get their daily bread is taxed at full value. Additionally, they pay a “self-employment” tax to the Federal government. This would be social security, which is normally divided in two portions, the employer’s half and the employee’s half. Since a person who is self-employed has no employer, he or she gets to pay the full amount. It amounts to a “rich man’s” tax. And many self-employed folks hardly count as the wealthy. They just happen to get to pay the bill for class warfare.
Oh well. I’m still not gonna pass on the tax on service to others, nor do I intend to raise my rates. I tend to think they shouldn’t be responsible for paying my personal income tax for me. That’s the cost of living in New Mexico, I suppose.