Temporary Deduction from the Sales of Prepared Food and Drinks

Beginning March 1, 2021 and prior to July 1, 2021, receipts of a food or beverage establishment from the sale of prepared food or non-packaged beverages that are served at the establishment for immediate consumption, or that are picked up by customers or delivered to customers for immediate consumption, may be deducted from gross receipts. (Section 7-9-118 NMSA 1978) This deduction does not include fast-food restaurants that sell food intended to be ordered, prepared, and served quickly, with minimal or no table service, and prepared in quantity by a standardized method for consumption on and off premises. An establishment is considered a fast food restaurant when it tends to have any of the following characteristics:

• a menu consisting primarily of pre-cooked items or items prepared in advance and heated quickly;
• placement of orders at a fast serve drive-through or walk-up window;
• service of food solely in disposable wrapping or containers; or
• a menu that exclusively sells hamburgers, sandwiches, salads, and other fast foods.

Mobile food services are not considered to be “fast-food restaurants”, and may take the deduction, so long as they have been issued a permit that is in good standing. Licensed dispensers where alcoholic beverages are prepared and served for on-premises consumption, as well as licensed craft distillers, small brewers, and winegrowers, may also take the deduction, but only with respect to receipts from food and non-packaged beverages. Taxpayers will claim the deduction separately after all other allowable deductions available to them have been taken. Paper filers will report all receipts being deducted for each location on a separate line and use the special code “P,” for “prepared food and drinks,” to identify the deduction. Additional locations where the deduction is being claimed will be entered on separate lines entering the special code “P.” Electronic filers using Taxpayer Access Point (TAP) will claim all receipts being deducted for a particular location separately and select “prepared food and drinks” from the rate type dropdown. Additional locations where the deduction is being claimed will be entered separately and be identified again by selecting “prepared food and drinks” from the rate type dropdown. Businesses taking this deduction during the allowable period may choose to either not charge their customers gross receipts tax on the deductible receipts, or they may continue to charge the tax on the amount they receive from customers and keep the tax charged. But such payments of tax received from the customer will not be considered gross receipts, and businesses should not report such tax payments as gross receipts, nor claim the deduction with respect to such payments. In this way, businesses may keep the payment of gross receipts tax from customers as a direct relief payment.