The Texas Comptroller of Public Accounts released a private letter ruling on October 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.
Related Services Generally Subject to Texas Sales Tax
Texas imposes sales tax on the sale of tangible personal property and taxable services. The state provides a list of taxable services that includes real property services, real property repair and remodeling, and security services, further detailed below.
Taxable Real Property Services
Texas real property services include services such as landscaping, residential and nonresidential building or grounds clearing, janitorial, or custodial services. Minor maintenance and repairs, such as window washing and light maintenance, are included in the definition of taxable real property services.
Taxpayers should collect and remit sales tax on services considered a taxable real property service. If a taxpayer subcontracts taxable services, a resale certificate may be issued to the subcontractor since the taxpayer should be charging sales tax to its customers.
Real Property Repair and Remodeling Services
Nonresidential real property repair and remodeling in Texas are subject to sales tax, including repair, restoration, remodeling, and modification of an improvement to real property. A taxpayer’s charges to perform these services will be subject to sales tax.
Security Services
If the services provided by a taxpayer require an investigations company license or a security services contractor license, the services fall under the definition of security services in Texas. Security services are subject to sales tax in Texas. Any services provided by an investigations company, guard company, security services contractor, or private security officer are security services.
Catering and Food Services
A caterer is a seller of prepared food and beverages and must collect and remit sales tax from customers on the entire price. This includes any separate expenses billed to the customer in connection with the meal.
Printed Materials and Graphic Art
Texas sales tax should be collected and remitted on the charge for producing multiple copies of printed material as well as the charge for reprography services or print room activities.
The comptroller ruling states that property management companies can secure tenants for landlords on their own or hire a third party to secure tenants. Any services performed for use outside of Texas won’t be subject to Texas sales and use tax.
We’re Here to Help
If you have questions about property management in Texas, please contact your Moss Adams professional.
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