Under Texas Tax Code Section 151.0048, can a contractor or homebuilder buy landscaping and other real property services tax free when building a new home, and does that exemption also cover model homes or subdivision common areas?

Plain-English summary

This letter responds to questions about Senate Bill 640's amendment to Texas Tax Code Section 151.0048, which covers "real property services" — defined in the statute to include landscaping, care and maintenance of lawns, yards, or ornamental trees and other plants, garbage and waste removal, building and grounds cleaning, janitorial or custodial services, structural pest control services, and surveying of real property.

The Comptroller's office confirmed that a contractor constructing a new residential structure can buy these real property services tax free, using an exemption certificate stating that the services are bought by a contractor constructing a new residential structure.

However, the letter draws several lines around that exemption:

• Homeowners' associations cannot use it for common areas. An HOA is not constructing a structure to be occupied as a residence, so services like lawn spraying around a pool, and other common-area work — club houses, tennis courts, subdivision signs and greenscapes, rights-of-way, etc. — do not qualify.
• Model homes don't qualify either. Even though model homes are residential-looking structures, the letter says services performed at model homes are not exempt because model homes are used for commercial purposes, and the exemption isn't extended for the "life" of the model home or repeated lawn applications there.
• The amendment is residential-only. It does not reach nonresidential or commercial new construction at all.

What this means for you

Homebuilders and contractors building new residential structures

You can give your landscaping or other real-property-service vendor an exemption certificate stating that the services are being bought for construction of a new residential structure, and the purchase can be made tax free. This applies to the specific list of services in Section 151.0048 — landscaping, lawn/tree/plant care, garbage and waste removal, grounds and building cleaning, janitorial/custodial services, structural pest control, and land surveying.

Homebuilders who maintain model homes

Don't extend the exemption certificate to services performed at model homes. The Comptroller treats model homes as commercial-use property, so lawn care, landscaping, or other real property services there are taxable, no matter how long the model home has been in use or how many times the service is repeated.

Homeowners' associations

HOAs cannot use this exemption for common-area landscaping or other real property services — clubhouses, pools, tennis courts, subdivision entry signs and greenscapes, and rights-of-way are all explicitly excluded, because an HOA isn't constructing a residence.

Accountants and tax professionals advising builders

Remember that the exemption is tied strictly to new residential construction. Any nonresidential or commercial new construction project falls outside the amendment entirely, regardless of who the contractor is.

Common questions

Q: Can a contractor buy landscaping services tax free when building a new house?
A: Yes. Texas Tax Code Section 151.0048 lets a contractor building a new residential structure buy real property services — including landscaping — tax free, by giving the vendor a certificate stating the services are bought for a new residential structure.

Q: Does the exemption cover a homeowners' association's common-area landscaping, like lawn spraying around a pool?
A: No. The letter says an HOA is not constructing a structure to be occupied as a residence, so common areas such as club houses, tennis courts, subdivision signs and greenscapes, and rights-of-way don't qualify.

Q: What about lawn care or landscaping at model homes?
A: Not exempt. The letter states services performed at model homes are taxable because model homes are used for commercial purposes, regardless of how long the model home is in use or how many lawn applications are performed.

Q: Does this exemption apply to commercial or other nonresidential new construction?
A: No. The letter confirms the amendment affects only new residential construction, not nonresidential or commercial new construction.

Q: What exemption certificate is needed to buy these services tax free?
A: A certification stating that the services are bought by a contractor constructing a new residential structure.

Citations and references

Statutes and rules:

• Texas Tax Code Section 151.0048 (real property services; new residential construction exclusion, as amended by Senate Bill 640)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9510782L

Original ruling text

October 30, 1995

Dear ***:

Thank you for your recent letter about Senate Bill 640 that amends Texas Tax
Code Section 151.0048.

The questions you asked are restated below with answers immediately following:

Question 1: What services, if any, are covered under this section of the code?

Answer: Texas Tax Code 151.0048 defines real property service to mean
landscaping, the care and maintenance of lawns, yards, or ornamental trees or
other plants, garbage and waste removal, building and grounds cleaning,
janitorial, or custodial services, structural pest control services, and
surveying of real property.

Question 2: What type of exemption certificate is needed?

Answer: A certification that states that the services are bought by a
contractor constructing a new residential structure.

Question 3: Could a homeowners' association become tax exempt for the common
areas, i.e., lawn spraying of grass around a pool?

Answer: No. A homeowners association is not constructing any structure to be
occupied as a residence. The exclusion does not apply to common areas in a
residential subdivision, e.g., club houses, tennis courts, subdivision signs
and greenscapes, rights-of-way, etc.

Question 4: Model homes usually are used for an extended period of time. How
long will the exemption last for this type of 'residence.' In other words,
will an exemption be allowed for multiple lawn applications?

Answer: The services performed at the model homes are not exempt. The model
homes are used for commercial purposes.

Question 5: Additionally, please verify that the amendment affects only
residential property and not commercial property.

Answer: The amendment only affects the construction of new residential
structures. It does not affect nonresidential or commercial new construction.

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 1-800-531-5441, extension 3-4683. The direct line is
512/463-4683. You may also write to Tax Policy Division, Comptroller of Public
Accounts.

Sincerely,

Eddie C. Washington
Tax Policy Division