Gross receipts tax to state?

[Aisone]

I've been a fulltime trader for many years, and am now getting a notice from the state of NM for gross receipts tax on my revenues (pre-business expenses) for a given year.

I've never paid a gross receipts tax in NM or IL, and when I was using an accountant in IL who specialized in trading accounts, he never applied a gross receipts tax to my state returns.

Is this a legit tax, and if not, what would be my appropriate response?

 

[tiddlywinks]

I've been a fulltime trader for many years, and am now getting a notice from the state of NM for gross receipts tax on my revenues (pre-business expenses) for a given year.

I've never paid a gross receipts tax in NM or IL, and when I was using an accountant in IL who specialized in trading accounts, he never applied a gross receipts tax to my state returns.

Is this a legit tax, and if not, what would be my appropriate response?

From a cursory search...
http://www.tax.newmexico.gov/Businesses/gross-receipts.aspx
http://www.tax.newmexico.gov/Businesses/who-must-file-.aspx

I am not a resident of NM nor do I conduct business in NM. Moreover, the structure of your trading business is very pertinent to the situation... "tangible personal property" could be interpreted by the state as applicable.

Good luck

 

[Big AAPL]

I am NOT an accountant. However, I have filed as a sole proprietor for many years. It seems as if your state is treating you as a business that collects revenue and/or collects tax revenue from goods sold or services offered. You may simply be miscategorized. Are you filing as an individual?

 

[Aisone]

Thanks for looking it up, tiddlywinks. That's about as far as I just got as well. I did also find this for who is required to pay (although it doesn't include or exclude traders):

3.2.225.10 STOCKBROKERS (pdf):

A. The receipts of New Mexico stockbrokers or mutual fund salespeople, who are independent contractors, from commissions from the sale of stocks, bonds, or mutual fund shares are subject to the gross receipts tax.

B. Receipts of out-of-state correspondents of New Mexico stockbrokers or out-of-state mutual fund sales companies from performance of service outside New Mexico are not subject to the gross receipts tax.

C. Receipts of New Mexico stockbrokers or mutual fund salespeople, who are independent contractors from commissions on the sale of stocks, bonds or mutual fund shares do not include amounts which are paid over to their out-of-state correspondents or their out-of-state mutual fund sales companies for the correspondent's or companies' service performed outside New Mexico. [3/9/72, 11/20/72, 3/20/74, 7/26/76, 6/18/79, 4/7/82, 5/4/84, 4/2/86, 11/26/90, 11/15/96; 3.2.225.10 NMAC - Rn, 3 NMAC 2.66.1.10, 6/14/01]

 

[Aisone]

I am NOT an accountant. However, I have filed as a sole proprietor for many years. It seems as if your state is treating you as a business that collects revenue and/or collects tax revenue from goods sold or services offered. You may simply be miscategorized. Are you filing as an individual?

I file joint and include my income/expenses on a Schedule C as a sole prop. I agree I may be miscategorized. I don't know if NM sees anything other than that I used a Schedule C on my fed return.

 

[Big AAPL]

Then the only tax that should concern you is estimated tax, which is similar, but designed for individuals.

 

[tiddlywinks]

Then the only tax that should concern you is estimated tax, which is similar, but designed for individuals.

Sched C is used for a BUSINESS. A sole prop is a business formation. Albeit, a disregarded entity according to the the IRS (which is not the state), but sole (or joint) INDIVIDUALS do not/ can not use sched C unless there is some type of business with business expenses hopefully offset at least partially with business income. The state is gently (at this point in time) calling the business out.

 

[Big AAPL]

Interesting perspective Tiddly...thanks. However, I think I meant sole prop as originally stated.

 

[sprstpd]

Trading income is not considered earned income. Does the gross receipts category still apply if the income derived is not earned income? That is the first avenue I would explore. Of course, it is possible I am not understanding the original question, but any tax that is based on the cumulative property sold without considering cost basis would put every active trader out of business immediately.

 

[Aisone]

Trading income is not considered earned income. Does the gross receipts category still apply if the income derived is not earned income? That is the first avenue I would explore. Of course, it is possible I am not understanding the original question, but any tax that is based on the cumulative property sold without considering cost basis would put every active trader out of business immediately.

I've always been told taxes for a trader are considered "ordinary income", (thus not subject to capital gains). Here's one websearch definition of it.

ORDINARY INCOME TAXATION

Ordinary income can be simply defined as the income earned from providing services or the sale of goods (inventory). This category includes income earned from interest, wages, rents, royalties and similar income streams. Ordinary income is taxed at different rates depending on the amount of income received by a taxpayer in a given tax year. In 2012, there are currently six tax brackets for taxing ordinary income: 10%, 15%, 25%, 28%, 33%, and 35%. These ordinary income marginal tax brackets are scheduled to expire at the end of 2012. In 2013, the 10% through 28% tax rates will remain the same and the top two rates of 33% and 35% will be replaced with higher rates, 36% and 39.6% respectively.

With it phrased this way, as "goods", I'm not sure if it is helpful, as it sounds a lot like "property/tangible."