The Texas Tax Code provides that sales of “real property services” are subject to Texas sales and use tax. [1] “Real property services” include the following:
- Landscaping;
- The care and maintenance of lawns, yards, or ornamental trees or other plants;
- The removal or collection of garbage, rubbish, or other solid waste other than:
- Hazardous waste;
- Industrial solid waste;
- Waste material that results from an activity associated with the exploration, development, or production of oil, gas, geothermal resources, or any other substance or material regulated by the Railroad Commission of Texas under Section 91.101, Natural Resources Code;
- Domestic sewage or an irrigation return flow, to the extent the sewage or return flow does not constitute garbage or rubbish; and
- Industrial discharges subject to regulation by permit issued pursuant to Chapter 26, Water Code;
- Building or grounds cleaning, janitorial, or custodial services;
- A structural pest control service covered by Section 1951.003, Occupations Code; or
- The surveying of real property. [2]
However, there are exceptions to the above. For example, the Texas Tax Code also provides that a service will not be considered a “real property service” if it’s purchased by a contractor as part of the improvement of real property with a new structure to be used as a residence, or another improvement immediately adjacent to the new structure and used in the residential occupancy thereof. [3] I’ve previously written about the rules applicable to contractors – that post can be found here. Interestingly, Comptroller Rule 3.291 (which lays out the tax responsibilities of contractors) notes that in these cases, a contractor must issue a “properly completed exemption certificate or other acceptable documentation” to the service provider, but no such requirement exists in the Tax Code itself. [4]
Other Interesting Notes
While the majority of the “real property services” items are relatively straightforward, a few of these items are not. In particular, determining when solid waste is “hazardous waste” or “industrial solid waste” can be complicated. These terms are not defined by the Tax Code, and the Comptroller’s regulations themselves refer to the United States Environmental Protection Agency and the Texas Health and Safety Code for applicable definitions. [5] In turn, those sources require a complex application of facts to determine whether a particular item of waste is “hazardous,” “industrial solid waste,” or another form of solid waste, the removal of which may be a “real property service.
Another noteworthy facet of “real property services” is the application of these rules to “property management companies,” which are defined to include:
“A person who, for consideration, operates and manages all the activities at a property held by the owner for purposes of rental, such as: an office building, mall or other retail or office complex, an apartment complex, duplex, or home. In the context of this rule, the responsibilities of a property management company must include, but are not limited to, securing tenants, hiring and supervising employees for operation or upkeep of the property, receiving and applying revenues, and incurring and paying expenses derived from the operation of the property as directed by the owner.” [6]
The Comptroller’s rules provide that if a property management company permanently assigns an employee to only one of its managed rental properties, any reimbursement charge for taxable services performed by that employee (including real property services) will not be taxable. This does not apply, however, if the employee also performs real property services with respect to other managed rental properties. [7] Conversely, if the property management company opts to engage third-party service providers to provide real property services, the company can proceed in the following ways:
- The property management company may issue a resale certificate to the service provider, and collect tax from the property owner on the taxable charge; or
- The property management company may pay tax to the service provider, and collect the full amount of the invoice (including services and tax) from the property owner. [8]
If you have any questions on Texas Sales Tax Treatment of Real Property Services, don’t hesitate to give us a call at 214.984.3000.
[1] Tex. Tax Code §§ 151.051(a), 151.010, 151.0101(a)(11).
[2] Tex. Tax Code § 151.0048(a).
[3] Tex. Tax Code § 151.0048(b).
[4] 34 Tex. Admin. Code § 3.291(b)(7).
[5] 34 Tex. Admin. Code §§ 3.356(a)(3)(D), (E).
[6] 34 Tex. Admin. Code § 3.356(a)(6).
[7] 34 Tex. Admin. Code § 3.356(n)(1).
[8] 34 Tex. Admin. Code § 3.356(n)(3).
