Hello cwray,
Did you file a federal tax return for this same income and pay federal taxes or is it just the state that you did not file?
Hello again cwray,
I am sorry I did not realize from your original question that you were referring to New Mexico's gross receipt tax that you are being asked to pay.
Unfortunately there is no easy fix or answer to your problem. Taxpayers remain responsible for any type of tax they may owe at the federal level, state level or local level. Even though you no longer live in the state and the fact that you are not currently working will still not relieve you of this debt.
From what you have described, it sounds as though the state is billing you based on your gross receipts alone. Is it possible that some of your gross receipts from those years would be exempt from the gross receipts tax, such as services that you provided to clients outside of the state of New Mexico? If you had some receipts which were exempt, that would help to reduce your tax bill, but you would have to file the paperwork with the state to show them your exempt receipts so that they could recalculate the amount you owe.
At that point if you can still not afford to pay the taxes that are due, the state will generally work with you to work out an acceptable payment plan. Unfortunately, interest would still continue to accrue on your tax bill until the amount was paid in full, but at least it would buy you some time until possibly you are once again working and have enough income to pay this debt.
I am sorry I could not give you more encouraging news as I realize this must be a very stressful situation for you, but hopefully you can work out an acceptable payment plan that can get you through this situation.
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Thank you and good luck in getting this resolved.
Accountant
25+ years tax consulting. Specializing in returns for US citizens living abroad