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