Foreign nationals setting up U.S.-based LLCs often encounter challenges when navigating state sales tax registration. One common issue is confusion around the necessity of obtaining an Individual Taxpayer Identification Number (ITIN) when applying for a sales tax certificate. In a consultation with Alex Oware, CPA, the client sought advice on registering for sales tax in New Mexico and whether an ITIN was required.
First, it is important to note that New Mexico does not have a sales tax. It has a gross receipts tax instead. This tax is imposed on persons engaged in business in New Mexico. In almost every case, the person engaged in business passes the tax to the consumer either separately stated or as part of the selling price. Only in its effect on the buyer does the gross receipts tax resemble a sales tax. The gross receipts tax rate varies throughout the state from 5.125% to 8.8675% depending on the location of the business.
This article will clarify the process of Gross Receipts Tax registration for foreign LLC owners, specifically in New Mexico, and explain how to proceed without an ITIN.
Key Concepts and Issues
1. Gross Receipts Tax for Foreign LLCs: U.S. LLCs, including those owned by foreign nationals, in some cases may need to register for sales tax in various states to comply with tax obligations on e-commerce transactions. Each state has its own procedures, and the requirements can vary. Some states may request an ITIN or Social Security Number (SSN) of the responsible party during the application process, which can confuse non-resident LLC owners.
2. ITIN (Individual Taxpayer Identification Number): An ITIN is a tax processing number issued by the IRS to individuals who need to file U.S. tax returns but do not qualify for a Social Security Number. However, contrary to popular belief, an ITIN is not necessarily required (even though it’s a huge inconvenience for those without) to register for sales tax in most states, including New Mexico.
3. New Mexico Gross Receipts Tax Registration Challenges: In New Mexico, the online Tax registration system may prompt applicants to provide an ITIN or SSN. This can be problematic for foreign LLC owners who do not have an ITIN. However, there is a solution—New Mexico allows for Gross Receipts Tax registration via paper forms, where applicants can indicate that they are non-resident aliens and do not have an ITIN.
Step-by-Step Explanation for Sales Tax Registration in New Mexico
1. Understanding the Gross Receipts Tax Registration Process in New Mexico
When registering for Gross Receipts Tax in New Mexico, foreign LLC owners may encounter the online system’s request for an ITIN. If this happens, there is no need to abandon the process or delay registration until an ITIN is obtained. The solution lies in filing a paper form.
New Mexico allows non-resident LLC owners to register for Gross Receipts Tax via a manual process, bypassing the ITIN requirement. The steps are as follows:
- Download the New Mexico Business Tax Registration Form (ACD-31015): The form can be found on the New Mexico Department of Revenue’s website.
- Fill out the form: When asked for an ITIN or SSN, indicate that you are a non-resident alien and do not have an ITIN. Ensure you complete all other sections accurately to avoid processing delays.
- Mail the form: After registering you will receive a New Mexico Business Tax Identification Number. You will receive individual state tax ID numbers for the Gross Receipts Tax. Be sure to include any required attachments, such as a cover letter explaining that you cannot complete the online registration due to the ITIN request.
Once the form is processed, you will receive a New Mexico Business Tax Identification Number, which can be used for your business activities in the state.
Solutions, Recommendations, and Key Takeaways
- No ITIN Required for Gross Receipts Tax Registration: As a foreign LLC owner, you do not need to delay your business operations while waiting for an ITIN to complete the Gross Receipts Tax registration process. Instead, file a paper form with New Mexico’s Department of Revenue, noting your non-resident status.
- Paper Forms as a Viable Option: If the online system creates challenges due to requests for an ITIN or SSN, filing paper forms is an effective alternative. Ensure that the form is completed accurately to avoid errors or misclassifications that could result in future tax filing obligations.
- Consulting a CPA: While the process may seem straightforward, it’s important to ensure that you are correctly completing forms and complying with all relevant tax laws. Consulting with a CPA can help avoid mistakes that may lead to penalties or additional tax liabilities.
Additional Considerations
- State-Specific Sales Tax Rules: Each U.S. state has its own rules regarding sales tax registration, licensing, and remittance. It is crucial to check the specific requirements of any state where your LLC operates to ensure compliance. Many states now have economic nexus rules, where out-of-state sellers are required to collect sales tax if they meet certain sales thresholds.
- Sales Tax Nexus: Your obligation to collect sales tax may depend on whether your LLC has “nexus” in a state. Nexus is typically established through physical presence, but for e-commerce businesses, many states have introduced economic nexus laws that require businesses to register for sales tax if they exceed certain sales thresholds.
- Sales Tax Filing Requirements: Once you are registered for Gross Receipts Tax in New Mexico, make sure you comply with ongoing filing requirements. Gross Receipts Tax returns may be filed quarterly, though some states may have monthly or annual filing obligations depending on your sales volume.
Foreign nationals owning U.S. LLCs should not be deterred by ITIN requirements when registering for state sales tax. As demonstrated in the case of New Mexico, filing a paper form allows non-residents to bypass the ITIN requirement and proceed with obtaining a Gross Receipts Tax license. This process ensures that your business can operate smoothly without unnecessary delays.
If you need assistance navigating sales tax registration or other tax-related issues, consult with O&G Tax and Accounting for expert guidance.
Need help with your sales tax registration or tax compliance as a foreign LLC owner? Schedule a consultation with O&G Tax and Accounting Services today.
Additionally, ensure your business complies with the Corporate Transparency Act (CTA) by filing your beneficial ownership information before the deadline. Our team can assist you in meeting these obligations efficiently and on time.