Article
Managing property in Texas? This ruling impacts sales tax on related services
April 4, 2024 · Authored by Shane Griffiths
The Texas Comptroller of Public Accounts released a private letter ruling on Oct. 20, 2023, which clarifies that companies must have specific responsibilities — notably, the responsibility to secure tenants to meet the definition of a property management company and qualify for the exemption from Texas sales tax for real property services.
Property management companies, especially those based outside of Texas, should carefully review their activities in Texas to confirm whether sales tax should or shouldn’t be charged on their service receipts.
What constitutes a property management company in Texas?
The Texas comptroller released a determination in response to a ruling request that further clarifies what constitutes a property management company under Texas Tax Code Section 151.354(f).
In the ruling request, the comptroller determined that the taxpayer didn’t qualify as a property management company for purposes of Texas sales tax. The taxpayer doesn’t secure tenants or receive and apply revenue for its clients.
Companies providing facility management and property consulting services in Texas may be subject to sales tax on charges to their clients for taxable real property services if the company doesn’t operate and manage all the activities at the property held by the owner.
To meet the definition of a property management company under Texas tax law, the company must:
- Operate and manage all the activities at a property held by the owner for rental purposes
- Have the responsibility of securing tenants, hiring, and supervising employees for upkeep of the property, as well as receiving and applying revenues and paying expenses for upkeep on the property
A property management company that meets these qualifications won’t be subject to Texas sales tax on the sale of its real property services that would otherwise be taxable.
A company that doesn’t operate and manage all the activities at client properties doesn’t meet the definition of a property management company. It appears Texas will apply more scrutiny when evaluating non-Texas based companies that claim to provide nontaxable property management company services.
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