The New Mexico Taxation and Revenue Department ("Department") recently released a ruling that a contractor's receipts from operating a space surveillance system were subject to tax.
The taxpayer was a contractor for the Air Force Space Command and assisted in its mission to detect, track, and identify all space objects within a certain area. Its contract required the taxpayer to manage, operate, maintain, and provide logistical and general operations support for a space surveillance system. The system was located in New Mexico.
New Mexico taxes the gross receipts of any person engaging in business in New Mexico. "Gross receipts" is the total amount of money or the value of other consideration received from taxable sales. Taxable sales include sales of services performed (1) outside New Mexico, if the product of the service is first used in New Mexico, or (2) in New Mexico. New Mexico exempts receipts from certain activities related to space operations. These activities are (1) launching, operating, or recovering space vehicles or payloads in New Mexico; (2) preparing a payload in New Mexico; (3) operating a spaceport in New Mexico; and (4) providing research, development, testing, and evaluation services for the United States Air Force operationally responsive space program.
The Department ruled that the taxpayer's services did not qualify for these exemptions. The taxpayer did not provide research, development, testing, and evaluation services. Instead, it provided management, operation, maintenance, and support services. The Department also noted that the services were performed in New Mexico and that the product of the services (i.e., a fully functioning space surveillance system) was first received in New Mexico. The taxpayer's receipts were therefore subject to New Mexico's gross receipts tax.