Could an exempt nonprofit homeowners association buy member services tax-free and recover sales tax it had paid in error?

Plain-English summary

This STAR document contains an August 5, 1991 follow-up letter and the earlier July 5 letter to a nonprofit homeowners association. Comptroller records showed that the association's exempt status was effective April 27, 1987.

The July letter said the association qualified to buy items and services tax-free when they related to its exempt function. If it did not separately charge members for services such as garbage collection and disposal, mosquito spraying, common-area cleaning, security, and maintenance, it did not collect tax from members and could give suppliers a properly completed exemption certificate.

The August follow-up addressed taxes the association had already paid. It could ask suppliers in writing for refunds of sales tax paid in error under Rule 3.325(b), provided the four-year limitation period had not expired. The letter illustrated the deadline with tax collected in October 1987 and reported on a monthly return due November 20, 1987: the supplier had to make a written Comptroller refund request before November 20, 1991.

What this means for you

The exemption applied to purchases connected with the association's exempt function, not automatically to every purchase. The association also had to avoid separately charging members for the covered services under the facts addressed in the letter.

For past overpayments, the letter routed the refund through the supplier and emphasized the four-year deadline. Current exemption qualifications and refund procedures should be checked because this guidance is from 1991.

Common questions

Could the association issue exemption certificates to suppliers? Yes, for purchases related to its exempt function.

Did it have to collect tax from members? Not when it made no separate member charge for the services described.

How could it recover tax already paid in error? By making a written refund request to the supplier.

What limitation period applied? Four years, measured through the supplier's deadline to seek recovery from the Comptroller.

Did the letter say garbage collection became taxable? Yes. It stated that real-property services such as garbage collection and disposal became taxable October 1, 1987, while addressing the association's exemption and refund rights.

Citations and references

• 34 Tex. Admin. Code Rule 3.325(b) — refunds, interest, and payments under protest.
• 34 Tex. Admin. Code Rule 3.322 — exempt organizations.
• 34 Tex. Admin. Code Rule 3.287 — exemption certificates.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9108L1127D09

Original ruling text

August 5, 1991

Dear **:

This is in response to your second letter, dated July 18, 1991,
concerning the sales tax that your nonprofit 501(c)(4) homeowner's
association has paid on purchases related to the exempt function
of the association.

You may request a refund of sales tax paid in error to suppliers
by issuing a written request to the supplier. Please refer to
section (b) of Rule 3.325-Refunds, Interest and Payments under
Protest. According to our records, your association was granted
exempt status effective April 27, 1987. Real property services
such as garbage collection and disposal became taxable October 1,
1987. You may request that the supplier refund all taxes paid in
error provided the statute of limitations has not expired.

There is a four year statute of limitations. If your supplier
remitted sales taxes that were collected in October of 1987 on a
monthly sales tax return that was due November 20, 1987, then the
supplier can only recover that tax by making a written request to
the Comptroller before November 20, 1991.

This opinion is based on the facts that you presented. If there
are additional or different facts, this opinion may change.

Please feel free to contact me if you have any additional
questions. You may write me, call toll free 1-800-252-5555, ext.
34685, from anywhere in the United States or phone 512/463-4685.

Sincerely,

Julie Pesl
Tax Administrative Division

July 5, 1991

Dear **:

Thank you for your letter concerning the services that you provide
for members of your nonprofit homeowner's association.

According to the April 27, 1987 letter that You received from
Harry Rogers, your association has been granted a 501(c)(4)
exemption by the Internal Revenue Service. Therefore, your
association qualifies for exemption from paying sales tax on
purchases related to the exempt function of the association.

I've enclosed a copy of a letter that Adina Whittemore wrote to you in
October 1987. The letter outlines your sales tax responsibilities
with respect to purchases of garbage collection and disposal,
mosquito spraying, common grounds cleaning, security services, and
maintenance.

If you do not make separate charges to your members for these
services, you are not required to collect tax from your members.
You may issue a properly-completed exemption certificate to your
suppliers in lieu of paying sales tax. Please review Rule 3.322
Exempt organizations and Rule 3.287-Exemption Certificates. You
may make copies of the sample certificate to use as needed.

This opinion is based on the facts that you presented. If there
are additional or different facts, this opinion may change.

Please feel free to contact me if you have any additional
questions. You may write me, call toll free 1-800-252-5555 from
anywhere in the United States or phone 512/463-4600.

Sincerely,

Julie Pesl
Tax Administration Division