New Mexico Administrative Code
Title 3 - TAXATION
Chapter 2 - GROSS RECEIPTS TAXES
Part 211 - DEDUCTION - GROSS RECEIPTS TAX - SALE OR LEASE OF REAL PROPERTY AND LEASE OF MANUFACTURED HOMES
Section 3.2.211.10 - REMODELING OR OTHER IMPROVEMENTS

A. A buyer who purchases and improves real property, other than the buyer's residence, by either remodeling or constructing additional improvements on the property and who subsequently sells the real property with the improvements is considered to be regularly engaged in the construction business. The receipts attributable to the remodeling or other improvements constructed on the real property are subject to the gross receipts tax. The receipts subject to tax are the sales price less the value of the real property purchased. The value of real property (VRP) purchased is computed through the use of a formula. The formula is the ratio of the cost of the real property (CRP) purchased divided by the cost of the real property (CRP) plus the cost of the remodeling or other improvements (CRI) times the sales price (SP), or:

VRP = (CRP) x SP

(CRP + CRI)

B. The value of real property (VRP) is then subtracted from the sales price (SP) and the difference is the amount attributable to the value of remodeling or other improvements (VRI), which amount is subject to the gross receipts tax, or:

SP - VRP = VRI (Taxable receipts)

C. Example: C, a Construction Company, purchases a lot and house for $10,000. C then remodels the interior and exterior of the house at a cost of $15,000 and adds a concrete driveway, patio and walkway at a cost of $5,000. Upon completion of the remodeling and construction of the other improvements, C sells the real property with improvements for $60,000. C should compute its taxable receipts as follows: