Do You Need To File State Taxes In Addition To Expat Tax Returns?
Many states are getting aggressive about maximizing their tax revenues. As an American living abroad, this means that you may have to pay extra close attention to whether the State of New Mexico still considers you a resident. If you are deemed a state resident, you will be required to file New Mexico state taxes in addition to your Federal expat tax returns.
To determine whether you are still a New Mexico resident, you should ask yourself two questions: “Does the State of New Mexico consider me a resident?” and “Did I receive income from a source located in New Mexico?”
New Mexico is one of the states that makes it difficult for expats to abandon their state residency or domicile. To prove you are no longer a resident of New Mexico you must show “clearly and convincingly” that you have established your domicile away from New Mexico. While this may sound simple, the reality is not necessarily as easy as it may sound for expat taxpayers. For Americans living abroad, it may be particularly daunting.
New Mexico Residency
According to the New Mexico Taxation and Revenue Department, you may be considered a non-resident only after you can prove “you definitely do not intend to return to New Mexico.” You may have lived away from New Mexico for a long time but that makes no difference. What matters is whether or not you intend to return to New Mexico to live, ever. If you do intend to return, then you have to file a New Mexico tax return because you are considered a resident.
If you have left New Mexico and have no intention to return there to live, you should keep as much evidence of that with your expat tax records as possible. The best way is for your records to show you left nothing behind in New Mexico. In other words, your records should include documents that show you sold your New Mexico home, your spouse and kids no longer live in New Mexico, you moved all your financial accounts out of New Mexico, and anything else that supports you have no reason to return to New Mexico. One thing to note is that if you leave New Mexico mid-year, you will have to file a New Mexico return as a part-year resident for that year.
If it is clear and convincing that you are not a resident of New Mexico, the next step is to look closely at your income to determine if you have to file a New Mexico return as a non-resident.
First look at the source of your income. Was any of it received from a source located in New Mexico? If it was, then the next question regards whether that New Mexico income requires you to file a New Mexico tax return. The answer to that depends on the kind of income it is. You can use the following list to guide you if you are not a resident of New Mexico and you received income from New Mexico sources.
- Pension distribution received from a New Mexico source. Non-residents do not have to pay New Mexico tax on pension income from New Mexico sources. If a pension is your only New Mexico income, you do not have to file a New Mexico tax return. The same is true in all states. According to Federal law, beginning January 1, 1996, all states are prohibited from taxing your pension if you are a non-resident in that state.
- Investment income from a New Mexico source (interest or dividend income, capital gains from stocks or bonds). Most non-residents do not have to pay New Mexico tax on this income. You do not have New Mexico filing requirements if this is your only Mexico-source income, unless you have a business located in New Mexico. In that case, you may have to; New Mexico filing requirements mandates taxpayers to report the business-related investment income.
- Salary or benefits earned in New Mexico must be reported on a New Mexico tax return by a New Mexico non-resident.
- Rents or royalties from property located in New Mexico must be reported on a New Mexico Tax return by a non-resident of New Mexico.
- When income from intangibles such as patents, copyrights, franchises, trademarks and licenses is from use in New Mexico then that income is subject to New Mexico tax. If you sell an intangible to a New Mexico resident who is going to use the property in New Mexico, then you have to file a New Mexico tax return to report that intangible income.
- If you have an ownership interest in a business located in New Mexico you have to file a New Mexico return to report that income.
Need Help with your State and Federal Expat Tax Returns?
If you would like to speak to one of our expat tax experts, have expat tax questions, or need help filing your expat tax returns, please contact us.