Is a garage or covered parking space that comes bundled into an apartment lease (with no separate parking charge) taxable as a 'motor vehicle parking and storage service'?

Plain-English summary

An apartment complex owner/manager made a detailed legal argument to the Comptroller that garages and covered parking bundled into apartment unit leases should NOT be treated as a taxable "motor vehicle parking and storage service" under Tax Code § 151.0101(a)(4). The facts: garages (often physically attached to the unit) or reserved shelter spaces come with certain units, with no separate line-item charge for the parking; a tenant has no choice — the garage comes with the specific unit; some tenants without cars still rent garage-equipped units (using the space for storage of boats, trailers, etc.); and every tenant, garage or not, can park for free in the complex's open spaces.

The taxpayer's argument, in essence: taxable "motor vehicle parking and storage services" under the statute contemplates something like a downtown parking garage with an attendant — a genuine service. Renting an apartment unit that happens to include a garage or shelter, by contrast, is really renting a structure (real property), like renting a unit with a balcony or storage closet — no service element is involved since the tenant parks unassisted. The taxpayer invoked the "essence of the transaction" test from Texas case law (Williams & Lee Scouting Service v. Calvert; Bullock v. Statistical Tabulating Corp.) and argued Comptroller Rule 3.315, to the extent it taxes bundled apartment garages, is an unreasonable/unauthorized interpretation of the statute.

The Comptroller disagreed. Key points in the response:

• Motor vehicle parking and storage services have been taxable in Texas since October 2, 1984, under Rule 3.315, adopted (initially as an emergency rule) that year with language stating that a real property lease that includes motor vehicle parking/storage as part of the deal is taxable to the extent a value can be attributed to the parking — provable, for example, by a price difference between otherwise-similar units with and without a garage.
• Section 151.0101(a)(4) doesn't require a specific separate "service" element like an attendant, contrary to the taxpayer's reading; the Legislature gave the Comptroller, under § 151.0101(b), exclusive jurisdiction to interpret subsection (a), and § 111.002 authorizes the Comptroller's rulemaking generally.
• Most notably, the Comptroller invoked the legislative acceptance doctrine: Rule 3.315 (in its various versions, all containing this same core language) has survived seven regular legislative sessions without the Legislature amending § 151.0101(a)(4) to override it. Under this doctrine — recognized in Texas case law (Quorum Sales, Inc. v. Sharp; Central Power & Light Co. v. Sharp) — when an agency construes a statute in a particular way and the Legislature re-enacts the statute without changing that construction, the Legislature is deemed to have accepted the agency's interpretation, which validates it.

What this means for you

Apartment owners and property managers

Bundling a garage, carport, or reserved shelter space into a unit's lease — even with no separate parking charge — doesn't avoid Texas sales tax on the parking. If a monetary difference exists between similar units with and without the garage/shelter (or such a difference could be established), that difference is treated as taxable "motor vehicle parking and storage" consideration, per Rule 3.315.

Accountants and tax professionals

This letter is a strong illustration of the legislative acceptance doctrine in Texas tax administration — a useful tool anytime a client challenges a long-standing Comptroller rule interpretation that has survived multiple legislative sessions unchanged. It's also a good example of the Comptroller rejecting an "essence of the transaction" argument in favor of its own rule-based, value-attribution approach.

Common questions

Q: Is a garage bundled into an apartment lease (no separate parking charge) taxable in Texas?
A: Yes, per this letter — taxable to the extent a value can be attributed to the parking, under Rule 3.315, even without a separately stated charge.

Q: What is the "legislative acceptance doctrine"?
A: Per this letter, it's the principle that when an agency interprets a statute a certain way and the Legislature re-enacts the statute without changing that interpretation across multiple sessions, the Legislature is deemed to have accepted the agency's construction, validating it.

Q: Does it matter that every tenant (with or without a garage) can park for free in open spaces?
A: Not per this letter's outcome — the Comptroller taxed the value attributable to the exclusive garage/shelter space itself, regardless of the free general parking availability.

Citations and references

Statutes and rules:

• Tex. Tax Code § 151.0101(a)(4) (motor vehicle parking and storage services — taxable service)
• Tex. Tax Code § 151.0101(b) (Comptroller's exclusive jurisdiction to interpret subsection (a))
• Tex. Tax Code § 111.002 (Comptroller's rulemaking authority)
• 34 Tex. Admin. Code Rule 3.315(a)-(b) (motor vehicle parking and storage 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/9809815L

Original ruling text

September 10, 1998

Dear ****:

Thank you for your recent letter concerning the taxation of parking provided by
apartment owners or managers of residential apartment complexes.

Information Provided:

You represent the owner and/of manager of several apartment complexes. A
question has arisen as to the applicability of the Texas sales tax,
specifically, l51.0101(a)(4) of the Limited Sales Excise and Use Tax Act of
Texas (the "Act"), to the rental of apartment units with garages and/or covered
parking facilities.

On behalf of your client, you are requesting advice as to the Comptroller's
position on the issue as it applies to the facts set forth below.

Your client leases apartment units in complexes that include a limited number
of garages. In most cases, the garage is physically attached to, and is a part
of, the apartment unit; in others, a garage is rented with a unit even though
it may not be attached. In either case, the tenant has no choice in the matter

• the garage is leased with a specific apartment unit.

In addition, a tenant can rent a unit with a reserved space under a
free-standing shelter that is not tied to a particular unit. The apartment
leases do not impose a separate charge for parking, whether a tenant's unit or
lease includes a designated garage or the right to park in a reserved space
under a shelter or any other space in the complex. All tenants have the right
to use open parking spaces in the complex whether or not their unit or lease
also includes a garage or sheltered parking.

There is no requirement in the lease of a unit with a garage or free-standing
shelter that the tenant have a motor vehicle or that the garage or shelter be
used for such vehicle. Indeed, a tenant who has no vehicle may rent a unit with
a garage or shelter; and further, a tenant who has a motor vehicle may rent a
unit with a garage or shelter and use it for storage of other items, including
boats, trailers, and the like, and may park in the open parking spaces free of
charge just as tenants whose units or lease do not include garage or shelters.

Section l5l.0l0l(a)(4) of the Act includes, in the definition of "Taxable
Services" motor vehicle parking and storage services. Section l5l.0101(b) of
the Act provides that the Comptroller shall have exclusive jurisdiction to
interpret subsection (a) of Section 151.0101.

Comptroller's Rule Section 3.315(a) interprets the above Section by stating, in
pertinent part, that:

Sales tax is due on parking and storage fees for a motor vehicle. Examples
include parking meters...fees, decals and permits for parking or storage in any
lots or garages, including impound fees...

It is submitted that Section 3.315 of the Comptroller's Rules is inapplicable,
on its face, to the renting of apartment units with garages or shelters; or, in
the alternative, that such Section is an unreasonable or unauthorized
interpretation of Section 151.0101(a)(4) of the Act.

The express language of the statute applies to the furnishing of "motor vehicle
parking and storage services" (emphasis supplied). For example, a downtown
parking lot or garage, with attendant who parks the vehicles and/or collect the
parking fees, involves a service element, and it is submitted that it was these
types of facilities that the Legislature had in mind when enacting Section
l51.0l0l(a)(4) of the Act. By contrast, in the instant situation, the tenant
parks his vehicle himself. No parking services are provided when an apartment
complex owner leases a unit with a garage or shelter; rather, there is included
within the lease of the unit, space in a garage or under a shelter, but no
service. In most cases, the garage is actually a part of the apartment unit
structure itself.

It is further submitted that, unlike downtown parking lots or garages, an
apartment project owner charges rent for a dwelling unit that may include a
garage or shelter. Both involve the rental of a structure, not furnishing of a
parking or storage service. Indeed, Comptroller's Rule Section 3.315(a) makes
such distinction in giving an example such as parking meters, which involve
only parking and the service associated with the collection of the fees and the
enforcement thereof. The leasing of a garage or shelter is merely an amenity to
the apartment unit like a storage closet, balcony, patio or the like and
involves no service element.

It is also important to make the distinction that every tenant of the apartment
complex is permitted to park in the open spaces free of charge, including those
who rent units with garages or shelters. Tenants who have cars may wish to pay
more to protect their vehicles from the elements, crime, etc., but, again, such
payment is for a structure, not a service. Tenants who have no car or who use
the garage or shelter for the storage of items other than motor vehicles,
similarly are paying for a structure, not a service; and such tenants can park
their vehicles elsewhere on the premises free of charge.

Texas courts have adopted the "essence of the transaction" test in determining
whether a particular transaction involves the sale of tangible personal
property as opposed to intangible personal property or a service. See Williams
& Lee Scouting Service v. Calvert, 452 S.W.2d 789 (Tex. Civ. App.-Austin, 1970,
writ ref'd) and Bullock v. Statistical Tabulating Corp., 549 S.W.2d 166 (Tex.
l977). It is submitted that a court, employing such test in the instant case,
would conclude that the object or essence of the rental or an apartment unit
with a garage or shelter is the rental of a structure, i.e., real property, not
the furnishing of a service. The apartment tenant's objective is renting a
unit with a garage or shelter is to obtain space and/or shelter for his or her
vehicle or other items. The Act does not apply to the sales or rental of real
property and should not apply to motor vehicle parking where no services are
involved.

It should also be emphasized that the Act applies to "motor vehicle" parking
and storage services. Again, the downtown parking lot or garage, or the
parking meters in the example set forth in Rule Section 3.315(a), involves the
parking or storage of motor vehicles only --apartment complex's garages,
free-standing shelters or open parking spaces may involve the parking or
storing of a variety of items, including motor vehicles, but people do not
typically park or store their boats, trailers or other items in downtown lots
or garages or at parking meters.

YOUR CONCLUSION

In summary, you submit that the Act contemplates the providing of services, not
the renting of space or a structure as part of another space or structure, and
applies to a parking or storage facility that is inherently designed for and
used only by and for motor vehicles; and, to the extent that Comptroller's Rule
Section 3.315 would interpret the Act in a broader sense to include the renting
of garages and free-standing shelters as a part of the renting of a residential
unit, such Rule is an unreasonable and unauthorized interpretation and is,
therefore, unenforceable. See Subsection 11l.002(a) of the Act and Sharp v. Cox
Texas Publications, Inc., 943 S.W.2d 206 (Tex. App., Austin, 1997, no writ).

Response: We respectfully disagree. Texas Tax Code 151.0101(a)(4) defines
motor vehicle parking and storage services as a taxable service. The
legislature did not specifically include any language mandating that any
specific "service" be provided as you suggest. The legislature added
subsection (b) to 151.0101 giving the comptroller exclusive jurisdiction to
interpret subsection (a).

Texas Tax Code 111.002 authorizes the comptroller to adopt rules that do not
conflict with the laws of this state or the United States for the enforcement
of the provisions of the sales tax act and the collection of taxes and other
revenues. Rule 3.315 concerning motor vehicle parking and storage services is
a duly promulgated rule.

Motor vehicle parking and storage services have been taxable since October 2,
1984. The comptroller adopted Emergency Rule 3.315 effective October 2, 1984
which contained subsection (b) which read:

A contract for the lease or rental of real property may include motor vehicle
parking and storage as part of the agreement. Sales tax is due on the motor
vehicle parking or storage charge if an amount can be attributed to the parking
or storage, either through the agreement itself or some other method. For
example, if one agreement does include motor vehicle parking and another
agreement for similar property does not, any monetary difference in the two
agreements may be considered as evidence of value of the parking.

There has been seven regular legislative sessions since the comptroller adopted
various versions of Rule 3.315, all of which contain the above language. The
legislature has not acted to change the rule indicating the legislature's
acceptance of the comptroller's interpretation of 151.1010(a)(4).

The legislative acceptance doctrine validates the comptroller's interpretation
of this rule. This doctrine states that when an administrative agency
construes a statute in a new manner and the legislature re-enacts the statute
without change, it agrees with the agency's construction. Quorum Sales, Inc.
v. Sharp, 910 S.W.2d 59, 64 (Tex. App.--Austin 1995, writ denied). The
doctrine has been applied to an agency's promulgated rules. See Central Power
& Light Co. v. Sharp, 919 S.W.2d 485, 489 (Tex. App.--Austin 1996), writ
denied per curiam, 40 Tex. Sup. Ct. J. 443 (March 21, 1997); Quorum Sales,
Inc., 910 S.W.2d at 64.

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 if you have any
questions or need more information. 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