Does a facilities management company that coordinates cleaning, maintenance, security, and catering subcontractors for commercial building tenants and landlords qualify as an exempt "property management company," and are its coordinated services and markup fee taxable?

Plain-English summary

A UK-headquartered facilities management company runs building operations for commercial clients (both tenants and landlords) across the U.S., Canada, and Trinidad, including Texas locations. It doesn't own the properties, doesn't secure tenants, and doesn't collect or apply rental income for its clients — instead, it coordinates and oversees services like cleaning, catering, security, mechanical/electrical maintenance, print room work, and landscaping, mostly performed by specialist subcontractors it hires (who charge the company sales tax when applicable). The company passes those subcontractor costs through to its clients and adds a separate management fee (markup for overhead and profit). It asked several questions about how Texas taxes this arrangement.

Is the company an exempt "property management company"? No. Texas has a specific, narrower definition: a property management company must operate and manage all the activities at a rental property, including securing tenants and receiving/applying the property's rental revenue on the owner's behalf. This company does none of that — it only coordinates specific services — so it doesn't qualify for that special employee-services treatment.

Are its services taxable? Mostly yes, across several categories. Landscaping, building/grounds cleaning, and janitorial work are taxable "real property services." Electrical and general maintenance that repairs something permanently built into the building is taxable "real property repair and remodeling." Any service requiring an Occupations Code security license (guard companies, investigations companies, etc.) is a taxable "security service." Catering is taxable under Texas's food-service rules, and running the print room/reprographics is taxable graphic-arts production. Because most of these are performed by subcontractors, the company can buy them tax-free using a resale certificate, then must collect and remit sales tax when it resells them to its own clients — and critically, its markup management fee for overhead and profit is legally part of the taxable sales price of those services, so tax applies to the whole package, fee included.

Can a property management company outsource tenant-finding? Yes — nothing in the property-management-company definition or rule prohibits hiring a third party to help secure tenants; that alone doesn't disqualify a company from the exemption (though this particular company still failed the test for the separate reason that it doesn't collect/apply rental revenue).

What about work performed outside Texas? Services genuinely performed for use outside the state are exempt from Texas sales and use tax under the interstate-services rule.

What this means for you

Facilities and property management companies

Don't assume "we manage the property" makes you an exempt property management company — Texas's definition is specifically about securing tenants and handling rental revenue for an owner, not general facilities coordination. If you don't do both of those things, your coordinated services (cleaning, maintenance, security, catering, printing) are taxed individually under their own categories, and your markup fee is part of the taxable price, not a separate nontaxable management charge.

Companies subcontracting taxable services to resell to clients

Buying taxable services from subcontractors with a resale certificate (instead of paying tax upfront) and then collecting tax when you resell to your own customer is the correct mechanic here — just remember your markup/management fee rides along as part of the taxable sales price, it doesn't escape tax as a separate "service fee."

Multi-jurisdictional service providers

Work genuinely performed for use outside Texas is exempt from Texas tax even if billed by a company with a Texas presence — useful for companies managing properties across state or national lines.

Common questions

Q: Would using a third party to find tenants disqualify a company from property-management-company status?
A: No — Texas's rules don't prohibit outsourcing tenant-securing. This company failed the test for a different reason: it doesn't collect and apply rental revenue for the property owner at all.

Q: Does the company owe tax on its management/markup fee separately from the underlying services?
A: No, not separately — the markup fee is legally folded into the taxable sales price of whatever taxable service it's attached to, so the whole combined charge (subcontractor cost plus markup) is taxed together.

Q: What happens with the sales tax the subcontractors originally charged the company?
A: The company should instead give its subcontractors a resale certificate to buy the services tax-free, then collect tax itself when reselling to the end client — avoiding tax being collected twice on the same underlying service.

Q: Does this ruling apply to my facilities/property management business?
A: Not automatically. This is a private letter ruling binding only on the Comptroller as to this taxpayer's specific facts. Similar businesses should confirm their own service mix and property-management-company status with a Texas tax professional.

Citations and references

Statutes and rules:

• Tex. Tax Code § 151.051, § 151.010 (sales tax imposition; taxable item)
• Tex. Tax Code § 151.354(f) (property management company definition)
• Tex. Tax Code § 151.0048 (real property services); § 151.0047 (real property repair/remodeling); § 151.0075 (security services)
• Tex. Tax Code § 151.0101(a)(11), (13), (14) (taxable services list)
• Tex. Tax Code § 151.007(a)(2) (sales price includes management fee/markup)
• Tex. Tax Code § 151.314(c-2) (catering); § 151.151 (resale certificate); § 151.330(e) (out-of-state services exemption)
• 34 Tex. Admin. Code § 3.356 (Real Property Service); § 3.357(b) (repair/remodeling); § 3.333 (Security Services); § 3.293 (Food Service); § 3.312(b) (Graphic Arts); § 3.285 (Resale Certificate)
• STAR Accession No. 200703903L (2007)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/202310013L

Original ruling text

October 20, 2023

RE: Private Letter Ruling No. PLR20220818130756

Dear

** and **,

We issue this private letter ruling in accordance with Rule 3.1, Private Letter Rulings and General Information Letters. We are responding to your request dated June 6, 2022, and supplemental information furnished on Nov. 2, 2022, and March 14, 2023. Detrimental reliance relief is provided in accordance with Rule 3.10, Taxpayer Bill of Rights.

You requested guidance on whether the operations of a facilities management company fall under the definition of a “property management company” and whether its services are subject to Texas sales and use tax.

Facts Presented

** (Taxpayer) is a facility management company headquartered in London, United Kingdom. It provides facility management and property consulting services to commercial customers across different industries throughout the United States, Canada, and Trinidad.

Taxpayer has several clients in Texas. Taxpayer’s clients are property tenants or landlords. If the client is a landlord, the client secures its own tenants or hires another third party to secure tenants. Taxpayer does not secure tenants or receive and apply revenues for its clients.

Taxpayer may have control over a single self-contained building or a suite within a commercial building that houses other tenants. Taxpayer does not own the properties at which it provides its facility management services.

The provision of these services involves general oversight and management of facilities, including devising strategies and plans on how to best manage the property, supporting clients with their budgets, hiring and supervising employees for the operation or upkeep of facilities, and paying expenses as directed by clients. Services billed by Taxpayer may include cleaning, catering, security, mechanical and electrical maintenance, print room, reprographics, landscaping, and hospitality services.

Most of the services are provided by specialist subcontractors hired by Taxpayer, not by Taxpayer or its clients’ employees. Taxpayer stated that these service providers charge Taxpayer sales tax when applicable. Taxpayer recovers the costs on a pass-through basis from its customers.

Taxpayer also charges clients a management fee which is a markup for overhead and profit to manage, coordinate, and facilitate the delivery of its services. The management fee may be either a fixed dollar amount or percentage of the cost of its services depending on the commercial terms agreed to with its subcontractors.

Questions, Rulings, and Analysis

Our restatement of your questions is shown below, followed by our responses and analysis.

Question One: Do Taxpayer’s operations fall under the definition of a “property management company” in Section 151.354(f)?

Ruling One: No, Taxpayer is not a property management company as defined in Section 151.354(f).

Analysis for Ruling One: Section 151.354(f) (Services by Employees of Property Management Companies) defines a property management company as a person who operates and manages all the activities at a property held by the owner for purposes of rental, including an office building, mall, or other retail or office complex and whose responsibilities include securing tenants, hiring and supervising employees for operation or upkeep of the property, receiving and applying revenues, and incurring and paying expenses derived from the operation of the property as directed by the owner. See also Rule 3.356(a)(6) (Real Property Service).

Taxpayer does not operate and manage all the activities at its clients’ properties as is required by Section 151.354(f) and Rule 3.356(a)(6). Taxpayer does not secure tenants and does not receive and apply revenue for its clients. Therefore, Taxpayer does not meet the definition of a property management company.

Question Two: If Taxpayer is not deemed a property management company in Texas, are Taxpayer’s services taxable real property services as defined in Section 151.0048 and Rule 3.356?

Ruling Two: Taxpayer sells a number of taxable items including real property services, real property repair and remodeling, security services, catering and food service, and printed materials and graphic art.

Analysis for Ruling Two: Texas imposes a sales tax on each sale of a taxable item in this state. Section 151.051 (Sales Tax Imposed). The term taxable item includes tangible personal property and taxable services. Section 151.010 (Taxable Item). Section 151.0101 (Taxable Services) provides the list of services subject to Texas sales and use tax. This list includes real property services, real property repair and remodeling, and security services. Sections 151.0101(a)(11), (13), and (14). These services are addressed by Rules 3.356 (Real Property Service), 3.357 (Nonresidential Real Property Repair, Remodeling, and Restoration; Real Property Maintenance), and 3.333 (Security Services) respectively.

Section 151.007(a)(2) (Sales Price or Receipts) provides that the sales price of a taxable item means the total amount for which a taxable item is sold, without a deduction for the cost of the materials used, labor or service employed, interest, losses, or other expenses.

Real property services include landscaping, residential and nonresidential building or grounds cleaning, janitorial, or custodial services. Section 151.0048 (Real Property Service). This includes minor maintenance and repairs such as window washing and lighting maintenance. Rule 3.356(a)(7). Taxpayer should collect and remit sales and use tax on any charges for landscaping, building or grounds cleaning, or janitorial services as the sale of taxable real property services. Sections 151.0048 (Real Property Service) and 151.0101(a)(11) and Rule 3.356(a)(4), (a)(7), and (b).

Real property repair and remodeling means the repair, restoration, remodeling, or modification of an improvement to real property. Section 151.0047 (Real Property Repair and Remodeling). Taxpayer’s charges for general and electrical maintenance to repair items permanently incorporated into a building are charges for the repair of real property. Taxpayer should collect and remit tax on these charges. Sections 151.0047 and 151.0101(a)(13) and Rule 3.357(b).

Taxpayer states it provides security services to its customers. Under Section 151.0075 (Security Service), services that require a license under Occupations Code, Sections 1702.101 (Investigations Company License Required) or 1702.102 (Security Services Contractor License Required; Scope of License) are security services. This includes services provided by an investigations company, guard company, security services contractor, or private security officer. Rule 3.333(a) (Security Services). Taxpayer should collect and remit tax on charges for any services that require a license under Occupations Code, Sections 1702.101 or 1702.102. Sections 151.0075 and 151.0101(a)(13) and Rule 3.333(b).

Taxpayer provides catering and food service to its customers. Section 151.314(c-2) (Food and Food Products), Rule 3.293(c)(7) and (k)(1) (Food; Food Products; Meals; Food Service) and STAR Accession No. 200703903L (March 1, 2007) provide that a caterer is a seller of prepared food and beverages and must collect tax from its customer on the total price for preparing and serving catered meals, including separately stated expenses billed in connection with the meal.

Rule 3.312(b) (Graphic Arts or Related Occupations; Miscellaneous Activities) provides that sales tax is due on the total charge for producing multiple copies of printed material. Taxpayer should collect and remit tax on its charges for reprography services or print room activities.

Taxpayer subcontracts many of its taxable services from specialist service providers. For services purchased from subcontractors, Taxpayer can issue a resale certificate instead of paying tax at the time of purchase. Section 151.151 (Resale Certificate) and Rule 3.285(b)(1)(E) and (c)(2)(A) (Resale Certificate; Sales for Resale). Taxpayer should then charge its end customer sales and use tax on the sales price of the taxable services it sells. Taxpayer’s management fee for overhead and profit is an expense related to providing its services and must be included in the taxable sales price of its services. Section 151.007.

Question Three: Can a property management company use a third party to secure tenants?

Ruling Three: Yes, property management companies can secure tenants for landlords on their own or hire a third party to secure tenants. Neither Section 151.354 nor Rule 3.356 prohibit the use of a third party in assisting with securing tenants.

Question Four: If Taxpayer’s employees perform services outside of Texas, are these services excludable from Texas sales tax?

Ruling Four: Services performed for use outside this state are exempt from Texas sales and use tax. Section 151.330(e) (Interstate Shipments, Common Carriers, and Services Across State Lines).

Comptroller’s Decisions and STAR documents cited can be found on the Comptroller’s State Tax Automated Research (STAR) system. The Texas Tax Code, Texas Administrative Code, and the STAR system are accessible at www.comptroller.texas.gov/taxes/.

If you have questions about this private letter ruling, please email us through our website at https://comptroller.texas.gov/web-forms/tax-help/ and reference Private Letter Ruling No. PLR20220818130756.

Sincerely,

Tax Policy Division – Indirect Taxes

Texas Comptroller of Public Accounts