If we perform real property services at a bank building the bank partly uses itself and partly rents out, are we a 'property management company' under Texas Rule 3.356?

Plain-English summary

A taxpayer wrote to the Texas Comptroller asking how the newly adopted definition of "property management company" in Rule 3.356(a)(6) applied to a bank building where the bank used part of the building for its own operations and rented out the rest. The Comptroller's answer turned on the rule's own language: a person performing taxable services at a property is not a property management company for that property if the property is "held by the owner for purposes other than rental." Since the bank held (at least part of) the building for its own use — not purely for rental — the taxpayer performing services there was not acting as a property management company with respect to that property.

The Comptroller also pointed the taxpayer to Tax Code § 151.0101(a)(11) and noted that Subsection (b) gives the Comptroller exclusive jurisdiction to interpret which real property services listed in Subsection (a) are taxable.

What this means for you

Businesses performing services at mixed-use buildings

If you provide taxable real property services (such as janitorial, maintenance, or similar services) at a building the owner uses partly for its own operations and partly rents out, this ruling suggests you are not treated as a "property management company" for the owner-occupied portion. That distinction matters because Rule 3.356 taxes property management companies differently than other service providers — whether you qualify as one affects how the services you perform should be taxed.

Accountants and tax professionals

The key text quoted in the ruling is Rule 3.356(a)(6): "The term (i.e. property management company) does not include a person performing taxable services at a manufacturing facility or at a property held by the owner for purposes other than rental." Apply this test property-by-property (or portion-by-portion) based on how the owner actually uses the space, not just on the nature of the service provider's business generally.

Common questions

Q: Is a company that manages a building always a "property management company" for sales tax purposes?
A: Not necessarily. Under Rule 3.356(a)(6), the definition excludes a person performing taxable services at a property the owner holds for a purpose other than rental — for example, a building (or portion of a building) the owner occupies and uses for its own operations.

Q: What if the building is partly rented and partly used by the owner, like a bank branch?
A: The ruling addresses exactly this scenario. Because the definition asks whether the property is held "for purposes other than rental," a taxpayer performing services at the portion the bank uses for its own operations is not a property management company for that property.

Q: Who decides which real property services are taxable?
A: The Comptroller has exclusive jurisdiction to interpret the taxable services listed in Tax Code § 151.0101(a), per Subsection (b) of that same statute, as confirmed in this letter.

Q: Can I rely on this letter for my own business?
A: This letter was issued to one taxpayer based on the facts that taxpayer presented, and the Comptroller noted the opinion could change if the facts are different. It is not binding for anyone else's situation.

Citations and references

Statutes and rules:

• 34 Tex. Admin. Code Rule 3.356(a)(6) (definition of property management company; effective December 6, 1991)
• Tex. Tax Code § 151.0101(a)(11) (real property services as taxable services)
• Tex. Tax Code § 151.0101(b) (Comptroller's exclusive jurisdiction to interpret taxable services)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9212L1209B04

Original ruling text

December 3, 1992

Dear ***:

Thank you for your letter concerning the definition of a property management
company in Rule 3.356(a)(6).

Effective December 6, 1991, the definition of a property management company as
stated in the enclosed Rule 3.356(a)(6) was adopted. The definition states in
part the following:

...The term (i.e. property management company) does not include a person
performing taxable services at a manufacturing facility or at a property held
by the owner for purposes other than rental.

The language in the rule is clear. By definition, if ** performs
taxable services at a property held by the owner for purposes other than
rental, ** is not a property management company for that property.

You requested a cite regarding the authority of the Comptroller to interpret
the taxability of real property services. See Subsection (a)(11) of the
enclosed copy of Section 151.0101 of the Texas Tax Code. Please note that
Subsection (b) gives the Comptroller exclusive jurisdiction to interpret the
taxable services listed in Subsection (a).

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 1-800-531-5441, ext. 5-0030. The direct line is
512/475-0030. You may also write to Tax Administration, Comptroller of Public
Accounts.

Sincerely,

David Somerville