New Mexico‘s tax system ranks 31st overall on the 2025 State Tax Competitiveness Index. New Mexico has a graduated state individual income tax with a top rate of 5.9 percent. Unusually, New Mexico’s corporate tax rate is also graduated, with rates ranging from 4.8 percent to 5.9 percent, and not indexed for inflation.
New Mexico also has a 4.875 percent tax on sales, with an average combined state and local rate of 7.62 percent. As a hybrid between an ordinary sales tax and a gross receipts tax, this tax does not apply to all intermediate transactions like a pure gross receipts tax but does apply to many more business inputs than are included in a typical sales tax, including manufacturing machinery and research and development (R&D) equipment. When this gross receipts-like tax applies to business-to-business transactions, it causes tax pyramiding throughout the supply chain, hampers investment, and negatively affects low-margin businesses.
The state’s corporate income tax also features a throwback rule, which exposes in-state businesses to additional tax when they sell into other states with which they do not have nexus, discouraging some businesses from locating operations in New Mexico. The state conforms to the federal treatment of capital investment under its corporate income tax, but with federal full expensing provisions currently phasing out, New Mexico has an opportunity to make its first-year expensing provisions permanent to avoid the erosion of this pro-investment provision.
| Category | Rank | Rank Change | Score |
|---|---|---|---|
| Overall | 31 | 1 | 5.02 |
| Corporate Taxes | 22 | 4 | 5.35 |
| Individual Income Taxes | 37 | 0 | 4.73 |
| Sales Taxes | 41 | -1 | 4.01 |
| Property Taxes | 2 | 0 | 6.45 |
| Unemployment Insurance Taxes | 16 | 2 | 5.40 |
Get facts about taxes in your state and around the U.S.
From 2021-2024, within the span of 3.5 years, more states enacted laws converting graduated-rate individual income tax structures into single-rate income tax structures than did so in the whole 108-year history of state income taxation up until that point.
10 min read
Americans were on the move in 2024, and many chose low-tax states over high-tax ones.
6 min read
Thirty-nine states will begin 2025 with notable tax changes, including nine states cutting individual income taxes. Recent years have seen a wave of significant tax reforms, and the changes scheduled for 2025 show that these efforts have not let up.
25 min read