In addition, I've always been directed to fill out a Form 4797, which is a "Sales of Business Property" form, and to include the sum of all net sales.
Who directed you to fill out Form 4797 ? Trading involves the buying and selling of capital assets. Equity and equity option trading is reported on Schedule D and futures and futures options and all other Section 1256 contracts are reported on Form 6781 ( which flows to Schedule D). Traders have zero income to report on a Schedule C. I am amazed the IRS has never come after you for improperly reporting your 1099B trading.
My accountant and it's also stated in Irs Pub 550: Special Rules for Traders in Securities under section Mark-to-market election made.
NM isn't mentioned much as a hotbed of activity for hedge or other money mgmt businesses. Maybe you hit on the reason! :eek: BTW: the earned/unearned income is a good argument. The problem with it, based on what I am understanding thus far of this situation, is the OP files his trading as a sched C business. Now then, there is no officially approved or sanctioned workaround (for the IRS, which is not the state) for turning unearned income (trading profits) into earned income using a schedule C. Make no mistake, there are workarounds, but none of them are guaranteed to work in all cases. So I'm thinking the state is eying that Sched C income as normal earned income, and having little to no knowledge of the trading "business" they want their share of the gross receipts, which CAN include the sale of tangible personal property (according to the state website), which CAN be interpreted to be the instruments traded by the business.