Is an apartment complex's manager's office and lobby treated as residential property (with nontaxable repair labor) or commercial property, for sales tax purposes?

Plain-English summary

Someone asked how to classify an apartment complex — and specifically its manager's office and lobby — as residential or commercial real property for sales tax purposes, since that classification determines whether repair/remodeling labor is taxable.

The Comptroller's answer: apartments are residential property, so labor charges for repairs or remodeling of an apartment complex are not taxable (materials used are still taxable either way). Under Rule 3.357(a)(10), "residential property" broadly includes:

• Family dwellings and multifamily apartment/housing complexes
• Nursing homes, condominiums, and retirement homes
• Homeowners-association-owned or apartment-owned swimming pools
• Apartment-owned laundry rooms for tenants
• Other common areas used by tenants

The manager's office gets a specific bright-line test: it only counts as residential if the office space is 5.0% or less of the total space of the residence (the complex). Cross that 5% threshold, and the office is treated as commercial space instead — meaning repair/remodeling labor on it would be taxable.

Residential property never includes hotels or any facility subject to the hotel occupancy tax, nor any area open to nonresidents.

What this means for you

Apartment complex owners and property managers

Repair and remodeling labor throughout your residential complex — units, pools, laundry rooms, tenant common areas — is not taxable (materials still are). But watch your manager's office footprint: if it exceeds 5% of the total complex space, that specific area flips to commercial classification, and repair/remodeling labor there becomes taxable.

Contractors working on apartment complexes

Ask about the size of any on-site office/leasing space relative to the whole complex before assuming all labor is nontaxable — the 5% threshold on the manager's office is a specific carve-out worth confirming before you bid or bill a job.

Accountants and tax professionals

Rule 3.357(a)(10)'s residential definition is broad for common tenant areas but applies a strict percentage test (5% or less of total space) specifically to on-site management/leasing offices — worth flagging in any mixed-use residential complex analysis.

Common questions

Q: Is labor to repair or remodel an apartment complex taxable?
A: No, for genuinely residential space — apartments, common tenant areas, pools, laundry rooms. Materials used in the repair/remodel are still taxable.

Q: Is the leasing/manager's office always treated as residential?
A: Only if it's 5.0% or less of the total space of the residence/complex. If it's bigger than that, it's treated as commercial.

Q: Does this include hotels?
A: No. Residential property specifically excludes hotels and any area subject to the hotel occupancy tax, or any area open to nonresidents.

Q: Can I rely on this letter for my own complex?
A: No. This opinion is based on the facts submitted, and other facts, though similar, may result in different answers.

Citations and references

Rules:

• 34 Tex. Admin. Code Rule 3.357(a)(10) (definition of residential property, including the 5% manager's-office test)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/200004191L

Original ruling text

Date: April 13, 2000

From: Bettie Peterson

To:

Subject: SALES TAX QUESTION

Thank you for your recent email.

Apartments are considered residential property. Labor charges for repairs or
remodeling in apartment complexes are not taxable. The materials are taxable.

Residential property includes property intended for use as a family dwelling or
a multifamily apartment or housing complex, nursing homes, condominiums, or
retirement homes. The term includes homeowners association-owned and
apartment-owned swimming pools, apartment-owned laundry rooms for tenants, and
other common areas for tenants' use. Managers' offices will only be
residential if the space occupied by the office is 5.0% or less of the total
space of the residence. The term does not include hotels or any other
facilities which are subject to the hotel occupancy tax or any other area open
to nonresidents. See Rule 3.357(a)(10).

Referenced rules are available at
.

The State Tax Automated Research system, which provides viewing and downloading
of rules, edited letter rulings, hearings, AG Opinions, etc., may be accessed
on the Internet at: http://www.window.state.tx.us/

This opinion is based on the facts you submitted and current law. Other facts
though similar, may result in different answers.

If you have questions or need more information, I will be glad to help you. You
may call me toll free from anywhere in the United States at 1-800-531-5441,
extension 5-0330.