Could a homeowners association use Texas's historical prior-contract exemption for garbage service, and how was its separately stated garbage charge treated?

Plain-English summary

The requester asked for the authorities supporting an earlier opinion about a homeowners association's garbage-collection arrangement. The letter quoted the historical note to Tax Code Section 151.0101: items or services newly taxed by the 1987 amendments could be exempt when covered by a written contract or bid entered on or before July 21, 1987, but the quoted provision said that exemption had no effect after January 1, 1990.

The Comptroller then said that if the HOA had fixed-rate written contracts with homeowners before July 22, 1987 to provide services including garbage collection, the HOA could claim the prior-contract exemption because it purchased the garbage service to fulfill those homeowner contracts. The letter does not reconcile that statement with the quoted January 1, 1990 expiration, so this page does not resolve the apparent timing tension.

Outside the prior-contract question, the HOA's separately stated garbage-collection charge was the sales price of a taxable service. Section 151.151 allowed the HOA to give its provider a resale certificate for the service it resold to homeowners.

The letter also cited Attorney General Opinion C-30 and the Texas Supreme Court's Calvert decision for the principle that a prior-contract exemption applied to property purchased for use in performing a contract, not a mere contract to sell tangible property.

What this means for you

This is a historical transition-rule letter, not a current blanket exemption for HOA garbage charges. Its durable operational point is that an HOA reselling taxable garbage service could use resale-certificate treatment, while the historical exemption depended on old contract dates and contains an unresolved expiration issue in the text itself.

Common questions

Was the HOA's garbage charge a taxable service? Yes. Could the HOA issue a resale certificate? Yes for the service resold to homeowners. Did the letter describe a prior-contract exemption? Yes, but it also quoted an expiration after January 1, 1990 and did not reconcile the two statements.

Citations and references

• Texas Tax Code Sections 151.005(1), 151.010, 151.0101, 151.051, and 151.151
• Attorney General Opinion C-30
• Calvert v. British-American Oil Producing Co., 397 S.W.2d 839 (Tex. 1965)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9112L1152D06

Original ruling text

December 19, 1991

Dear ***:

Thank you for your letter of June 26, 1991, addressed to Tom Soto.
Your letter was transferred to me recently for response.

You requested that Mr. Soto cite the code provisions or administrative
rules relied on to give his May 22, 1991 opinion.

The prior contract provision governing the amendments to the Texas
Tax Code that imposed sales and use tax on real property services
is found in the historical and statutory notes concerning the statutory
amendments that became effective October 1, 1987, and January 1, 1988.
The historical and statutory notes on TEX. TAX CODE Sec. 151.0101
(Vernon Supp. 1991) states:

"There are exempted from the taxes imposed by Chapter 151, Tax Code,
the receipts from the sale, use, or rental and the storage, use, or
other consumption in this state of items or services that became subject
to the taxes because of the terms of this part and that are the
subject of a written contract or bid entered into on or before July
21, 1987. The exemption provided by this section has no effect after
January 1, 1990."

A prior contract exemption was provided in the sales and use tax law
when the Texas Legislature adopted the act in 1961. Prior contract
exemptions have been included in subsequent amendments to the sales
and use tax law when the tax rate was increased or the tax base expanded.

Attorney General Opinion C-30 states that the prior contract exemption
does not apply to a mere contract of sale of tangible personal
property but only to a purchase of tangible personal property for
use in the performance of a contract. The Texas Supreme Court upheld
the Attorney General's Opinion in Calvert v. British-American
Oil Producing Co., 397 S.W. 2d 839 (Tex. 1965).

If the homeowner's association (HOA) had entered into written contracts
before July 22, 1987, with the homeowners to provide various
services, including garbage collection, for a fixed rate, the prior
contract exemption would apply. The prior contract exemption could
be claimed by the HOA because the services would be purchased by the
HOA to fulfill the terms of its contract with the homeowners.

Section 151.010 defines "taxable items" to mean tangible personal
property and taxable services. Section 151.051 of the Tax Code imposes
a sales tax on the sales price of a taxable item. Section
151.005 (1) (Vernon's Supp. 1991) defines a "sale" or "purchase"
as the performance of a taxable service for consideration.

HOA's separately stated charge for garbage collection represents the
sales price of the taxable service. Section 151.151 allows the HOA
to issue a resale certificate for the taxable service that it resells
to the homeowners.

Mr. Soto's response is based on the cited authorities.

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

You may call toll free 1-800-252-5555 if you have any questions regarding
this response. You may write to Tax Administration Division, Comptroller
of Public Accounts.

Sincerely,

Eddie C. Washington
Tax Administration Division