The New Mexico Department of Revenue has recently clarified rules regarding the application of the gross receipts tax to digital advertising services on websites accessible within the state. These rules, effective as of the December 2023 publication, specify that the 4.8% gross receipts tax now extends to digital advertising on platforms like search engines and banner ads. This clarification treats digital advertising similarly to other forms of advertising already subject to the gross receipts tax, such as print, billboard, radio, and television ads.
The new regulations define a digital platform as any website, including part of a website or applications, accessible or viewable to a user via the internet, and receipts from digital advertising services used by website providers are taxable if the site is viewable in New Mexico and displays digital advertisements. It’s worth noting that these regulations while addressing the specifics of digital advertising, do not expand the scope of the existing law; they simply provide clarity on how it applies to the digital realm.
The initial proposed regulations suggested sourcing receipts to server locations, but after input from TechNet, a group representing technology executives, the final rules source them to the location of the advertising service provider from which they were transmitted or primarily provided to the purchaser. Despite suggestions during public hearings to consider a company’s billing address or commercial domicile as the reporting location, the department maintained the same language as in the revised proposal.
Overall, the goal of these regulations is to align the taxation of digital advertising with the realities of technology, ensuring fair application without singling out digital advertisers. Taxpayers in New Mexico who provide digital advertising services should ensure their sourcing of the gross receipts tax for digital advertising is consistent with the adopted regulations that define reporting. (3.1.4.13C(5)(e)(v) NMAC, December 19, 2023)