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New Mexico | #28 Overall
New Mexico has a graduated state individual income tax with a top rate of 5.9 percent. A new lower-rate bracket was created in 2025, though the top rate was left untouched. Also in 2025, New Mexico replaced its graduated-rate corporate income tax with a top rate of 5.9 percent to a single-rate tax of 5.9 percent on all income, a relatively rare case of a corporate income tax rate increase in recent years.
New Mexico also has a 4.875 percent tax on sales, with an average combined state and local rate of 7.67 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.
| Category | Rank | Rank Change | Score |
|---|---|---|---|
| Overall | 28 | -2 | 5.09 |
| Corporate Taxes | 23 | 1 | 5.38 |
| Individual Income Taxes | 37 | -1 | 4.75 |
| Sales Taxes | 38 | 1 | 4.14 |
| Property Taxes | 1 | 1 | 6.56 |
| Unemployment Insurance Taxes | 17 | -1 | 5.38 |
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