Out-of-State Company’s Drop Shipment Sales Not Taxable in New Mexico

A taxpayer, drop ships tangible personal property to its New Mexico customers, was not liable for New Mexico gross receipts because it did not have nexus in New Mexico. The taxpayer’s sales agreement with its customers provides that the transfer of title, ownership and risk of loss from the taxpayer’s out-of-state location occurs when the taxpayer has received a purchase order from the customer and the customer has received the property. As a result, the property is briefly owned by the taxpayer, even though the taxpayer never takes physical possession of the property in New Mexico. This brief ownership of the property was not considered sufficient ownership of property in New Mexico to establish nexus since there was no physical possession of the property. For that reason, the taxpayer may have gross receipts from selling property in New Mexico, but it does not have nexus and is not liable for gross receipts tax.

Furthermore, the taxpayer is not liable for compensating tax on its drop shipment sales because they are sales of property in New Mexico rather than sales made outside this state. It was also noted that if the taxpayer’s vendor has nexus with New Mexico, the vendor’s gross receipts are subject to gross receipts tax unless a statutory deduction or exemption applies to a transaction. However, the vendor does not incur a New Mexico compensating tax liability because it is selling tangible personal property rather than using it in New Mexico. (Ruling No. 401-09-5, December 3, 2009)

Posted on January 28, 2010