The New Mexico Taxation and Revenue Department (NMTRD) adopted final rules for determining when and where receipts from digital advertising services are taxable. The new rules became effective December 19, 2023. Another new rule clarifies when remote sellers may surrender their gross receipts tax licenses if they no longer meet the requirements for engaging in business in the state.
Application of Tax and Sourcing of Digital Advertising Services
Advertising services are subject to New Mexico gross receipts tax. NMAC 126.96.36.199 is a new rule explaining the application of the tax to digital advertising services. The tax applies to receipts of digital platform providers from selling digital advertising services when the digital platform may be accessed or viewed within New Mexico. The rule provides definitions for four terms: device, digital advertising services, digital platform, and user.
In short, New Mexico gross receipts tax applies to the receipts of a website or application provider from any advertising on a website or application when the website or application may be accessed or viewed in New Mexico through devices capable of accessing the internet.
The rules also add a new example to NMAC 188.8.131.52, which explains how receipts are sourced. In the example, a digital platform operator provides digital advertising services that can be viewed in New Mexico and are intended to be viewed only in New Mexico through access to the digital platform. The reporting location for gross receipts and related deductions from this service is determined by NMAC 184.108.40.206(C)(5)(e). Under that subsection, the reporting location is the business location of the digital platform provider, as that is the location from which the product of the digital advertising service was transmitted to the purchaser.
Subsection (e) is rarely used. It is used only when other common sourcing methods such as “Ship To” and “Bill To” locations are inapplicable. Because digital platform operators generally do not know the addresses of platform users, NMAC 220.127.116.11(C)(5)(e) applies to make the reporting location that from which the digital advertising service was transmitted. This may be a data center or similar facility, and it potentially includes the location of third-party data centers used by the platform operator.
Businesses providing these services will need to be aware of the locations from which their digital platforms are operated.
“Trailing nexus” is applied when a state requires a business to maintain a tax license even when the business no longer has nexus in the state. The amendments to NMAC 18.104.22.168 clarify that New Mexico does not impose trailing nexus rules once entities no longer have economic nexus.
The amendment allows businesses without a physical presence to close their gross receipts tax accounts after any calendar year in which the business did not meet the $100,000 taxable gross receipts threshold. Account closure is not automatic and must be specifically requested.
Please contact our Ryan expert, Josh Cohen, for assistance with these law changes.
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