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Gross receipts tax audits skyrocket in New Mexico

SANTA FE – Self-employed workers, contractors and business owners are coming under increasing scrutiny from the New Mexico Taxation and Revenue Department, which has been ramping up its efforts in recent years to collect delinquent gross receipts taxes.

The number of desk audits – or letters to taxpayers alerting them of a possible discrepancy in taxes paid – launched by the agency has skyrocketed, from 666 during the 2011 fiscal year to 17,930 in the budget year that ended in June, according to data provided by the agency.

The numbers do not necessarily correspond to individual taxpayers, as some taxpayers may have been audited more than once.

An upward trend in audits is no accident, however; a tax department spokesman said Friday that the agency has been able to better identify taxable income by using computer tracking programs to compare different sources of tax data. The number could go even higher this year, as more employees will be moved around internally to help with the task.

“The department is making a concerted effort to close this tax gap and collect money owed to the state for (gross receipts taxes),” TRD spokesman Ben Cloutier said in a statement.

Although not all of the audits have led to enhanced tax collections, the amount of money identified in the audits has also increased – from about $9.5 million in the 2011 budget year to roughly $35.1 million in the just-completed fiscal year.

In all, the state was on pace to collect more than $2.1 billion in gross receipts taxes during the 2015 fiscal year, according to a recent Legislative Finance Committee report. That means the delinquent taxes in question represent only about 1.6 percent of the total tax base.

New Mexico’s gross receipts tax is similar to a sales tax. It is imposed on anyone who does business in the state, sells or leases property, or does construction work or other types of services. While the gross receipts tax is often passed along to customers, it is up to businesses to file returns with the state.

Some taxpayers have complained the tax department has been overzealous in its attempt to collect gross receipts tax. For example, a Bernalillo County couple recently protested after being told they owed the state gross receipts taxes for money they received from selling excess energy produced by residential solar panels. The tax agency eventually dropped the matter.

A desk audit is triggered when the Taxation and Revenue Department detects possible underpayment of gross receipts taxes.

The taxpayer is then sent a letter and given 60 days to respond, either by providing documentation explaining the matter or paying the state back taxes owed. The agency then makes a final determination, which can be challenged via an independent hearing officer.

The tax department’s spokesman said Friday that the use of desk audits will be expanded this year, seeking voluntary compliance from taxpayers whenever possible.

“Because this is an ambitious initiative, we have reallocated personnel, streamlined the processes and set specific metrics to measure our effectiveness,” Cloutier told the Journal. “We anticipate this initiative will span 24 months, and result in increased compliance and collections.”

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