New Mexico Administrative Code
Title 3 - TAXATION
Chapter 2 - GROSS RECEIPTS TAXES
Part 226 - DEDUCTION - GROSS RECEIPTS TAX - CERTAIN REAL ESTATE TRANSACTIONS
Section 3.2.226.8 - CALCULATING THE DEDUCTIBLE PORTION OF A REAL ESTATE COMMISSION

A. The portion of a real estate commission which is deductible is calculated using the following formula: Deductible commission equals total real estate commission times a fraction, the numerator of which is the taxable receipts from the sale of the property and the denominator of which is the total receipts from the sale of the property, or

Total commission x taxable receipts from sale / total receipts from sale = deductible commission

B. "Taxable receipts from the sale" means that portion of the receipts from the sale of real property which is attributable to improvements constructed on the real property by the seller in the ordinary course of the seller's construction business.

C. Example: A real estate broker receives a $6,000 commission on a $100,000 sale of property by a construction contractor. Of the $100,000, $70,000 is the value of improvements constructed by the seller, for which the seller is subject to gross receipts tax. $30,000 is the value of the underlying land, which the seller (contractor) can deduct from gross receipts pursuant to Section 7-9-53 NMSA 1978. The real estate broker must report $6,000 as gross receipts. The real estate broker may calculate the deductible portion using the formula given in Subsection A of Section 3.2.226.8 NMAC:

$6,000 x $ 70,000 / $100,000 = $4,200

Thus, the real estate broker deducts $4,200 and pays tax on the remaining $1,800.