Place rack in the bottom of a boiling water canner, then place empty jars on the rack. Add water to the jars and the canner until the jars are about two-thirds full. Cover the canner and bring the water to a simmer over medium heat. Place lids in a small saucepan, cover with water, and bring to a simmer over medium heat. Do not boil. Keep lids hot until ready to use.

Heat a large Dutch oven over medium heat. When hot, toast the New Mexico chiles, reserved seeds, chili powder, and cumin. Stir frequently to avoid burning, about 30 seconds. Stir in water, onion, garlic, and salt. Cook until onions are softened, about 10 minutes. Stir in sugar and tomatoes. Bring to a simmer. Cook, stirring often for about 25 minutes.

Working in batches, carefully process hot tomato mixture in a blender until smooth. Return sauce to the pot and bring to a boil, then remove from heat. Taste, adjust salt and spices if necessary.

Remove jars from canner and place on dish towel. Add 1 tbsp of vinegar to each hot jar.

Ladle sauce into jars, leaving ½” headspace. Slide a skewer in the jars to remove any air bubbles. Wipe jar rims and threads with a moistened towel. Cover with two-piece lids. Screw bands to finger-tip tight.

Place jars onto rack in canner. Water must cover jars by 1 to 2 inches. Cover, bring water to a boil. Once boiling, process the jars for 40 minutes. Turn off heat after 40 minutes and let jars sit in canner for an additional 5 minutes. Remove jars and place upright on a towel to cool completely. After jars cool, check seals by pressing centers of lids with finger. If lid springs back, lid is not sealed and refrigeration is necessary.

Let prepared jars stand at room temperature 24 hours. Wipe down jars, affix labels to jars, and date. Store unopened sauce in a cool, dry place for up to 1 year.