Does sales tax or hotel occupancy tax apply to a timeshare condominium association's maintenance fees, bonus-time program, and repair/maintenance purchases?

Subject

Condominiums/Timeshares — Used As Residence And Commercially (Rented Out Daily Or Weekly) — Repairs/Remodeling Taxable — Considered Commercial Structure

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9402021L

Plain-English Summary

A Texas non-profit timeshare association asked the Comptroller how sales tax and hotel occupancy tax apply to its operations. Each owner holds an undivided interest in the condominium property as tenants in common, and the association collects an annual lump-sum management fee from owners to cover lawn care, landscaping, utilities, cable, janitorial services, exterminating, and repair/maintenance of the condos (mostly performed by the association's own employees). The association also charges owners for "bonus time" — extra occupancy beyond their normal ownership week(s) — to cover utilities and housekeeping.

The Comptroller's answers:

• Annual maintenance fee: Not separately taxed. The association itself is treated as the purchaser of all the materials and services it buys; owners are simply reimbursing the association for their pro-rata share of those costs.
• "Bonus time" program: Not subject to hotel occupancy tax. Under Tex. Tax Code § 156.001(1), a "hotel" is a building where members of the public obtain sleeping accommodations for consideration. Because bonus-time accommodations are offered only to existing timeshare owners — not the general public — hotel occupancy tax doesn't apply. (Rentals to the general public would be subject to hotel occupancy tax.)
• Resale/exemption certificates: Not allowed. The association is the purchaser of electricity, cable TV, exterminating, lawn care/landscaping, garbage pickup, maid/janitorial services, air conditioning service, appliance repair, and maintenance materials (paint, lumber, furniture, carpet, dishes, kitchenware, gas grills, wallpaper, plumbing repair materials) — it must pay sales/use tax on these and cannot issue a resale certificate to its vendors.
• Electricity: Electricity used in condominium common areas can be exempt (per-meter) if its predominant use is residential rather than commercial, per Rule 3.295. But occupancy periods under 30 days do not count as "residential use," so a meter serving units occupied by transient (short-stay) occupants would not qualify for the residential exemption.
• Repairs/remodeling: Timeshare condos occupied for periods of less than 30 days are treated as commercial structures, not residences. Under Rule 3.357 (repair/remodeling of nonresidential real property), repair, remodeling, or restoration of the rental units and common areas — e.g., carpet or central air conditioner repair/replacement — is taxable, unless the work qualifies as scheduled and periodic maintenance under Rule 3.357(a)(3) and (c)(2).
• Real property services: Maid/janitorial services, termite exterminating, landscape services, and trash pickup are taxable real property services under Rule 3.356, regardless of whether performed on residential or commercial property.
• General audit question: The Comptroller declined to answer a broad, open-ended question about "any other tax responsibilities," noting the association was already under audit and the auditor would review the actual facilities, records, and billings.

What This Means For You

If you run or manage a timeshare association: Budget for sales tax on essentially everything you buy to maintain the property — utilities, cable, pest control, lawn care, janitorial/maid services, appliance repair, and maintenance materials/supplies. You are the taxable purchaser; you cannot pass that role off to unit owners via a resale certificate, even though owners ultimately reimburse you through maintenance fees.

If you bill owners a "bonus time" fee for extra occupancy: As long as that extra occupancy is offered only to existing owners (not sold to the general public), it isn't a hotel-tax event. If you ever open bonus/rental time to non-owners, that changes the analysis and hotel occupancy tax would likely apply.

If you're deciding whether a common-area electricity meter qualifies for the residential exemption: Look at actual occupancy patterns on that meter. If units served by the meter are regularly occupied for stays under 30 days, the predominant use is not "residential" for exemption purposes, even though people are technically living there.

If you're hiring contractors to repair or remodel timeshare units: Expect the repair/remodeling charge to be taxable, because units with sub-30-day occupancy are treated as commercial, not residential, real property — unless the specific work is scheduled/periodic maintenance rather than repair or remodeling.

Q&A

Q: Does the association owe sales tax when it collects the annual maintenance fee from owners?
A: No tax applies to the fee collection itself — the association is considered the purchaser of the underlying goods and services, and owners are just reimbursing their pro-rata share. The tax instead applies where the association buys those goods and services.

Q: Is the timeshare association's "bonus time" program subject to hotel occupancy tax?
A: No. Tex. Tax Code § 156.001(1) defines a taxable "hotel" as accommodations offered to members of the public. Because bonus time is available only to timeshare owners, not the public, hotel occupancy tax doesn't apply. It would apply if accommodations were rented to the general public.

Q: Can the association give vendors a resale certificate to avoid paying sales tax on repairs, cable, lawn care, and similar purchases?
A: No. The association is treated as the end purchaser/consumer of these goods and services, so it must pay applicable sales and use tax and cannot issue a resale certificate for them.

Citations

• Tex. Tax Code § 156.001(1) (defining "hotel" as a building where members of the public obtain sleeping accommodations for consideration)

Original ruling text

February 3, 1994

Dear **:

Thank you for your letter of January 12, 1994 concerning sales and use tax and
hotel occupancy tax responsibilities of a timeshare association.

The ASSOCIATION is a Texas non-profit corporation composed of owners that have
purchased a timeshare condominium. Each owner holds an undivided interest in
realty as tenants in common.

The association's income consists of management fees and bonus time charges. A
lump-sum management fee is billed to each owner annually. This fee covers the
upkeep of the property including lawn care, landscaping, utilities, cable,
janitorial services, exterminating services, and the repair and maintenance of
the inside and exterior of the condos. Most repair is performed by employees of
the association. The "bonus time" permits an owner to occupy a timeshare condo
in addition to their week or weeks of ownership. A charge is made to cover
utilities and housekeeping costs.

Your questions are:

I. Does any tax apply concerning the collection of an annual maintenance fee
from each owner?

Response. No. The association is considered the purchaser of all materials and
services. The property owners are simply reimbursing the association for their
pro-rata share of the costs.

II. Is our "Bonus Time" benefit program, which is available to a timeshare
owner only, subject to sales tax and/or hotel tax?

Response. No. Section 156.001(1) of the tax code defines "hotel" as a building
in which members of the public obtain sleeping accommodations for
consideration. Your sleeping accommodations are only provided to owners and not
the public. Rentals to the general public would be subject to hotel occupancy
tax.

III. Is the Timeshare association permitted to give our vendors a Resale or
Exemption Certificate and not pay sales tax on the purchase of any of the
following goods and services?

A. Electricity
B. Cable TV.
C. Exterminating
D. Lawn Care and Landscaping
E. Garbage "Pick-Up" Service
F. Maid and Janitorial Services
G. Air Conditioning Service
H. Appliance Repair
I. Maintenance Items for the Timeshare Condos such as: Paint, Lumber,
Furniture, Carpet, Dishes & Kitchen Housewares, Gas Grills, Wall Paper,
Plumbing Repair Materials

Response. The association will be considered the purchaser of these goods and
services and should pay applicable sales and use taxes. A resale certificate
cannot be issued.

Electricity used in condominium common areas will be exempt if the predominant
use of the electricity (on a meter by meter basis) is residential and not
commercial. The occupation of these units for periods less then 30 days does
not qualify as residential use as defined in enclosed Rule 3.295, concerning
gas and electricity purchases. An exemption certificate may be issued for any
meter where the predominant use is residential.

Time-share condominiums are considered commercial structures when occupied for
periods less than 30 days. Rule 3.357 concerning the repair or remodeling of
nonresidential real property is enclosed for your review. The common areas of a
condominium project that include rental units and the rental units themselves
are considered commercial properties. Any repair, remodeling, or restoration of
these units (i.e.: carpet & central air conditioner repair or replacement) or
common areas are taxable under this rule unless the work qualifies as scheduled
and periodic maintenance (Section (a)(3) and (c) (2)).

Maid or janitorial services, termite exterminating, landscape services, and
trash pick-up services are all taxable real property services. This rule
applies to services performed on residential as well as commercial properties.
See enclosed Rule 3.356.

The association should also pay tax on repairs of tangible personal property
and maintenance material purchases.

IV. Are there any tax responsibilities of the ASSOCIATION that we need to know
about?

Response. This question is too general to address. I understand that the
association is currently under audit. The auditor will be able to tour the
facilities and review actual financial records, billings, purchases and other
information not at my disposal at this time.

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. 5-0613. The direct line is
512/475-0613. You may also write to Tax Administration Division, Comptroller of
Public Accounts.

Sincerely,

Kevin Koller
Tax Administration Division

cc: Mary Clark, Auditor, ** Audit Office