Texas Letter Ruling 9209L1209E03: Property Management Company — Services Performed At Bank That Uses Building For Own Operations And For Rental

Subject

Property Management Company — Services Performed At Bank That Uses Building For Own Operations And For Rental

Plain-English summary

The Comptroller ruled that a company managing a building owned by a bank does not qualify as a tax-exempt "property management company" for that bank, because the bank does not hold the building purely for rental purposes. The bank uses the building for its own operations in addition to renting space in it to third parties.

Under Rule 3.356(a)(6), the "property management company" exemption for real property services depends on the owner holding the property for rental. Because the bank here also uses the building for its own business, that condition is not met — so the company performing services at the building is treated as providing taxable real property services rather than exempt property management services.

The letter also restates a general bundling rule: if a company charges a single combined price for both taxable and nontaxable services, the whole charge is taxable once the taxable portion exceeds 5% of the total. But if the charges for taxable and nontaxable services are separately stated, only the taxable-services charge is taxable.

The Comptroller notes this opinion is based on the facts presented and could change if the facts are different.

What this means for you

Property management and building-services companies

If you perform real property services at a building, whether you can treat those services as exempt "property management" depends on how the building's owner uses it. If the owner (here, a bank) occupies part of the building for its own operations rather than holding it solely to rent out, you do not qualify for the property management exemption under Rule 3.356(a)(6) — your services are taxable real property services.

Banks and other owner-occupied commercial buildings

If your organization owns a building, uses part of it for your own operations, and rents out the rest, be aware that companies providing services to that building cannot claim the property-management exemption on your behalf. This ruling turns specifically on the fact that the building was not held for rental purposes only.

Businesses billing combined taxable/nontaxable charges

When you bill a single combined charge covering both taxable and nontaxable services, the entire charge becomes taxable once the taxable portion is more than 5% of the total. Separately stating the taxable-service charge limits the tax to just that portion.

Common questions

Q: Why doesn't the company qualify as a "property management company" here?
A: Because the bank that owns the building uses it for its own operations, not just for rental to third parties. Rule 3.356(a)(6)'s property management exemption requires the owner to be holding the property for rental purposes.

Q: What happens to a combined bill for taxable and nontaxable services?
A: If the taxable services make up more than 5% of a single combined charge, the entire charge is taxable. If the taxable and nontaxable charges are stated separately, only the taxable-services charge is taxed.

Q: Could this outcome change?
A: Yes. The Comptroller states the opinion is based on the facts presented, and it may change if there are additional or different facts.

Q: Can other taxpayers rely on this letter?
A: Only the taxpayer to whom it was issued can rely on it for detrimental-reliance purposes. It shows how the Comptroller applies Rule 3.356(a)(6), but is not binding on other taxpayers' situations.

Citations and references

No statutes are cited by name in this letter; it applies 34 Tex. Admin. Code Rule 3.356(a)(6) (Real Property Services), referenced by rule number in the ruling text.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9209L1209E03

Original ruling text

September 21, 1992

Dear **:

Thank you for your letter verifying the owner of the building in question is
the **, rather than the holding company. I have placed your letter
with the file of my May 22, 1992, response to you.

The ** is holding the property for purposes other than rental,
because it uses the building for its own operations besides rental to third
parties. This means that you are not a property management company for the bank
as defined in Section (a)(6) of Rule 3.356 Real Property Services. You must
collect and remit tax on a single total charge combining taxable and nontaxable
services if the taxable services are more than 5% of the total charge. If you
separately state the charge for taxable services from nontaxable services, the
charge for taxable services is taxable.

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

You may call me toll free at 1-800-252-5555, ext. 5-0030. The direct line is
512/475-0030. You may also write to Tax Administration, Comptroller of Public
Accounts.

Sincerely,

David Somerville
Tax Administration Division