New Mexico sells itself as the cheapest LLC formation in America at $50. No annual reports. No franchise taxes. Sounds like Wyoming without the hype, right?
Wrong. After helping 165+ entrepreneurs set up shop in New Mexico, I can tell you the Gross Receipts Tax (GRT) is the silent killer that turns this bargain into a burden. It’s not a sales tax – it’s worse. And most formation services conveniently forget to mention it.
Let me show you what you’re really signing up for in the Land of Enchantment.
The Gross Receipts Tax: New Mexico’s Sneaky Revenue Generator
Here’s the fundamental misunderstanding: People think New Mexico has no sales tax. Technically true. But the GRT is actually more aggressive than traditional sales tax.
Why GRT Is Worse Than Sales Tax:
Sales tax: Paid by consumer, collected by business
Gross Receipts Tax: Paid BY the business on ALL receipts
That’s right – you’re taxed on your gross revenue, not what customers pay. Most businesses pass it through to customers, but legally, it’s YOUR tax burden.
Current rates:
- State: 4.875% to 5.125%
- Local additions: Up to 4.3125%
- Total possible: 9.4375%
Albuquerque software developer discovered this brutally. Thought he was avoiding sales tax. Reality? 7.875% GRT on all client payments. On $200,000 in revenue, that’s $15,750 out of HIS pocket, not the clients’.
The Pyramiding Problem Nobody Discusses:
GRT applies at every transaction level. Manufacturer to wholesaler. Wholesaler to retailer. Retailer to consumer. Each level pays tax on their gross receipts.
Santa Fe restaurant owner buying from local suppliers: Suppliers paid GRT, passed cost to him. He pays GRT on restaurant sales. Effective tax burden? Nearly 12% when you trace it through.
New Mexico’s Income Tax: Progressive Pain in Four Acts
Beyond the GRT surprise, New Mexico runs a progressive income tax that climbs steadily.
2025 Tax Brackets (Single Filer):
- First $5,500: 1.7%
- $5,501 – $11,000: 3.2%
- $11,001 – $16,000: 4.7%
- $16,001 – $210,000: 4.9%
- Over $210,000: 5.9%
Real impact for Las Cruces consultant with $90,000 LLC profit:
- First bracket: $93.50
- Second bracket: $176
- Third bracket: $235
- Fourth bracket: $3,626
- Total NM tax: $4,130.50 (4.59% effective)
Compare to neighbors:
- Texas: 0% (no state income tax)
- Colorado: 4.40% flat
- Arizona: 2.5% flat (as of 2025)
- New Mexico: Up to 5.9%
One El Paso resident with Albuquerque clients moved his LLC to Texas. Instant 4.59% raise just from state taxes.
The Pass-Through Entity Tax: New Mexico’s SALT Cap Workaround
Like many states, New Mexico created a PTE election to help high earners bypass the federal $10,000 SALT deduction limit.
How It Works (When It Works):
Without PTE: Pay personally, limited to $10K federal deduction
With PTE: LLC pays at entity level, fully deductible federally
The math at $300,000 profit:
- PTE tax: 4.9% = $14,700
- Federal savings (37% bracket): ~$5,439
- Net benefit: Substantial
The Catches:
- All members must consent
- Irrevocable for the tax year
- Complex calculations for multi-state members
- Still subject to GRT regardless
Farmington oil services LLC tried PTE election with one Texas member, two New Mexico members. Texas member’s objection killed it. Cost the NM members $7,000 in lost deductions.
The Four New Mexico LLC Tax Personalities
Type 1: The Albuquerque Tech Entrepreneur
Software, consulting, digital services from ABQ or Rio Rancho.
Your reality:
- GRT on all revenue (even out-of-state clients)
- State income tax up to 5.9%
- City GRT additions
- No meaningful tech incentives
The killer: That GRT applies to service revenue. Unlike true sales tax states that exempt services, New Mexico taxes everything.
Duke City web developer with $150,000 in client revenue:
- GRT: $11,813 (7.875% Albuquerque rate)
- State income tax: ~$6,900
- Combined state/local: $18,713 (12.5% effective)
Type 2: The Santa Fe Artist/Gallery
Creative businesses in the art capital.
Special considerations:
- GRT on all sales (no art exemption)
- Tourist-heavy seasonal swings
- Santa Fe’s 8.4375% combined GRT
- Limited deductions for materials
The paradox: High-end art market, high-tax burden. One Canyon Road gallery owner calculated 11% of gross revenue goes to various NM taxes after pyramiding effects.
Type 3: The Oil & Gas Operator
Permian Basin, San Juan Basin operations.
Your complications:
- Severance taxes (up to 3.75%)
- Oil and gas emergency school tax
- Conservation tax
- GRT on equipment and services
- Property tax on reserves
Hobbs drilling services LLC thought they’d escaped Texas franchise tax. New Mexico’s combined oil and gas taxes actually hit harder – effective rate over 8% on net income.
Type 4: The Border Runner
Living near Texas, Colorado, or Arizona borders.
The arbitrage reality:
- NM taxes worldwide income for residents
- GRT follows the transaction location
- Multi-state filing requirements
- No reciprocity with Texas (big problem)
Las Cruces resident with El Paso clients: Still pays full NM income tax as resident, plus Texas franchise tax if doing business there. Double whammy.
The Husband-Wife LLC Advantage (Community Property Perk)
New Mexico’s one tax bright spot: community property state status allows Qualified Joint Venture election.
The QJV Benefits:
Without QJV: File partnership return (Form 1065), issue K-1s
With QJV: Skip partnership return, report on Schedule C
Saves ~$750-1,500 in tax prep annually. Small victory in a high-tax state.
But watch out: Must be legally married, both materially participate, and make election properly. Mess this up? IRS treats you as partnership retroactively.
Industry-Specific Tax Nightmares
Film Production:
- 25-30% tax credit sounds great
- But GRT on all production spending
- Complex qualification requirements
- Credits often sold at discount
Cannabis:
- Regular GRT (no special rate)
- Excise tax discussions ongoing
- Local additional taxes possible
- Banking complications increase costs
Tourism/Hospitality:
- Lodgers’ tax (5% state + 5% local possible)
- GRT on everything
- Seasonal revenue vs. year-round taxes
Renewable Energy:
- Some GRT exemptions for wind/solar
- But equipment purchases taxed
- Property tax on installations
- Complicated incentive applications
The S-Corp Election Math in New Mexico
GRT changes the S-Corp calculation significantly.
Traditional LLC at $100,000 profit:
- Self-employment tax: ~$14,130
- GRT (if applicable): Varies by business
- Total burden: High
S-Corp with $60,000 salary:
- Payroll taxes: ~$9,180
- Still pay GRT on gross receipts
- Additional compliance: ~$1,500
- Net benefit: Reduced but GRT remains
My New Mexico threshold: Don’t bother with S-Corp until $80,000+ profit because GRT complexity adds compliance costs.
Tip: Choosing S-Corporation tax status comes with added costs and responsibilities. For most new LLCs, it’s best to wait until the business is stable with reliable revenue. Once each Member’s annual net income reaches around $70,000, talk to your accountant about whether this option makes sense.
Red Flags for New Mexico Taxation & Revenue
Based on audit patterns I’ve observed:
- GRT underpayment (not understanding pyramiding)
- Out-of-state sales GRT confusion
- Service business GRT avoidance
- Multi-state income allocation games
- Oil and gas severance tax gaps
- Cash business underreporting (they watch bank deposits)
Survival Calendar for New Mexico LLCs
Monthly:
- GRT returns (if over $200/month tax)
Quarterly:
- Estimated income taxes
- Quarterly GRT if applicable
- Wage withholding
Annually:
- No annual report (the one blessing)
- Personal returns with LLC income
- PTE election if applicable
Strategic Moves for New Mexico LLCs
Year 1: Understand GRT Reality
- Register for GRT immediately
- Understand pyramiding impact
- Price services to include GRT
- Track every transaction
Year 2-3: Optimize
- Explore manufacturing deductions
- Consider PTE election
- Research film tax credits if applicable
- Plan interstate operations carefully
Year 4+: Advanced Planning
- Multi-entity structures to minimize GRT
- Out-of-state expansion to reduce NM source income
- Asset protection strategies
- Exit planning with GRT in mind
Tools for New Mexico Tax Compliance
GRT management: QuickBooks with custom settings
Multi-state issues: Professional software required
Oil and gas: Industry-specific solutions needed
PTE elections: CPA mandatory
The Bottom Line on New Mexico LLC Taxes
$100,000 profit LLC total burden:
- Federal self-employment: ~$14,130
- Federal income: ~$11,000
- New Mexico income: ~$4,500
- GRT (service business): ~$7,875
- Total potential: ~$37,505 (37.5%!)
Same LLC in Texas:
- No state income tax
- No gross receipts tax
- Save ~$12,375 annually
When New Mexico Makes Sense (Rarely)
Good for: Film production (with credits), retirement income (lower rates), businesses with NM-specific advantages
Bad for: Service businesses, high-revenue/low-margin operations, multi-state businesses
Neutral: Oil and gas (complicated), retail (depends on location)
Action Steps for New Mexico LLCs
Before forming:
- Calculate GRT impact on your business model
- Compare to Texas or Colorado alternatives
- Understand you’re paying tax on gross, not net
- Factor in 8-9% GRT when pricing
After forming:
- Register for GRT within 30 days
- Understand filing frequency requirements
- Track gross receipts meticulously
- Find CPA familiar with GRT pyramiding
Final Reality Check
New Mexico’s $50 formation fee and no annual report are genuine benefits. But the Gross Receipts Tax more than makes up for these savings. It’s a tax on doing business, not making profit, and it hits every transaction.
The businesses that succeed here either have New Mexico-specific advantages (film credits, oil and gas resources) or haven’t done the math on what GRT really costs them.
Ready to form despite the GRT? Northwest Registered Agent at $39 plus the $50 state fee keeps formation cheap. But budget for a good CPA – you’ll need one for GRT compliance.
Questions about surviving New Mexico’s gross receipts maze? Comment below. I respond within 48 hours because Land of Enchantment entrepreneurs deserve to know what they’re really paying.
Remember: An LLC in Delaware isn’t magic. And a New Mexico LLC isn’t the bargain it appears – that GRT makes sure of it.
About Jake Lawson: 15+ years guiding entrepreneurs through LLC formation and tax reality. Over 1,200 businesses launched, including 165+ in New Mexico. Former compliance consultant who’s calculated more GRT pyramiding effects than roadrunners in Albuquerque. Based in Austin, but I’ve spent enough time in New Mexico to know that “Land of Enchantment” refers to how they enchant money out of your business through gross receipts. No sugarcoating, just strategies for dealing with the GRT reality.