Is maid/janitorial service provided by a condominium property management company's own employees exempt from sales tax as an employee-wage exclusion, when the cost of that service is bundled into the management company's overall rental commission rather than billed separately?

Subject

Property Management Company/Rental Pool Organization — Condominiums/Timeshares — Charges For Taxable Services (Maid/Janitorial Services, Landscaping, Remodeling, Repairs)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9306L1241F06

Plain-English Summary

This June 1993 letter ruling responds to a property management/rental pool company ("ABC") that manages condominium units at a resort property (the "****") and provides maid service to owners and guests through its own cleaning personnel.

ABC's cleaning employees work only at this one property. ABC is effectively reimbursed dollar-for-dollar for maid service: every condominium must be cleaned at the end of each rental period regardless of the rental commission earned, and the 15%-30% commission ABC charges covers advertising, travel agent fees, phone and reservation services, check-in/checkout, bookkeeping, general overhead, and cleaning — all bundled together. ABC does not separately state a charge for maid service to the unit owners.

The Comptroller held that the exemption in Rule 3.356(n)(1) — based on Tax Code Sec. 151.057 and intended to prevent employees' wages from being taxed as if they were a sales-tax-covered service — does not apply, because each individually-owned condominium is treated as a separate property, not part of one single employer's own real property. As a result, the maid services ABC's employees provide at the property are taxable real property services.

However, the ruling carves out a practical safe harbor: ABC's charges for maid service will be considered exempt from sales tax in any billing period in which the value of the maid service is 5.0% or less of the amount ABC charges the owners for management services. ABC must keep records supporting any exemption claimed, and must support it on a unit-by-unit basis (not as an aggregate average across the whole property).

What This Means For You

If you operate a condominium/timeshare property management or rental pool business

Maid and janitorial service you provide to individual condo/timeshare owners through your own employees is generally a taxable real property service — the fact that your cleaning staff are your employees does not, by itself, exempt the service, because each separately-owned unit is treated as a separate property rather than as part of your own premises.

If your maid service charge is small relative to your management fee

You may be able to treat maid service charges as exempt for a given billing period if their value is 5.0% or less of what you charge for management services in that period. This is a period-by-period and unit-by-unit test, not a one-time or company-wide determination.

If you want to rely on the 5% safe harbor

Your records must support the exemption on a unit-by-unit basis — meaning you need documentation showing, for each individual condominium unit and billing period, that the maid service value falls at or under the 5.0% threshold, not just an overall average across all units.

If you currently bundle maid service into an all-inclusive commission

This ruling addressed a company that never separately stated a maid service charge to owners. The Comptroller still analyzed and taxed (subject to the 5% exemption) the value of that bundled service — not stating a separate charge does not, by itself, avoid tax exposure on the maid service component.

Q&A

Q: Does the employee-wage exemption in Rule 3.356(n)(1) apply to a management company's maid service at condominiums it manages?
A: No. The Comptroller ruled the exemption does not apply because each condominium owned by a separate individual constitutes a separate property, even though the cleaning personnel are the management company's own employees.

Q: Is maid service provided to condo/timeshare owners and guests a taxable service?
A: Yes. The letter states the maid services provided by the management company's employees at the property are taxable real property services.

Q: Is there any way for maid service charges to be exempt?
A: Yes, on a limited basis. Charges for maid service are exempt from sales tax in any billing period in which their value is 5.0% or less of the amount charged by the management company for its management services.

Q: What records are needed to support that exemption?
A: The company's records must support any exemption claimed on a unit-by-unit basis.

Q: What is the legal basis for the Rule 3.356(n)(1) exemption that the Comptroller found didn't apply?
A: Rule 3.356(n)(1) is based on Tax Code Section 151.057 and is designed to prevent taxation of employees' wages under the guise of sales tax.

Q: Does this ruling apply if the facts of my situation are different?
A: Not necessarily — the letter explicitly states the opinion is rendered based on the facts submitted, and other facts, though similar, may yield different results.

Original ruling text

June 7, 1993

Dear ***:

Thank you for your recent letter regarding the provision of maid service
by * to owners and guests at the **. Your letter is restated in
part with response below.

The cleaning personnel at ABC are assigned to one rental property, the
*. They do not provide real property services to any other properties
other than the ** . ABC is in effect reimbursed dollar-for-dollar for
the maid service. Each condominium must be cleaned at the end of each rental
period regardless of if the commission earned was $20 or $500. The 15 - 30%
commission pays for advertising, travel agent fees, long distance telephone and
reservation service, registration and check in services, checkout services
bookkeeping and accounting for rents collected, and all other overhead as well
as for cleaning service. Maid service is simply a cost that is passed on to the
owners. It has never been their policy to separately state the charge for maid
service.

Response: The exemption in Rule 3.356(n)(1) does not apply. Each condominium
that is owned by a separate individual constitutes a separate property. The
exemption in Rule 3.356(n)(1) is based on Tax Code Section 151.057 and designed
to prevent taxation of employees wages under the guise of sales tax. The maid
services provided by ABC employees at the **** are taxable services.
ABC's charges for maid service will be exempted from sales tax in any billing
period in which their value is 5.0% or less of the amount charged by the
management company for services. ABC's records must support any exemptions
claimed on a unit-by-unit basis.

This opinion is rendered based on the facts you submitted. Other facts,
though similar, may yield different results.

If you have questions or need more information, please call or write. You
may reach me by calling toll free, (800) 531-5441 (ext.34680). My direct line
number is (512) 463-4680. The number for FAX transmissions is (512) 475-0900.
You may write to me in care of Tax Administration Division.

Sincerely,

Al Van Allen
Tax Administration Division

NOTE: Previous Accession Number 9306054L