Were utility purchases for federally owned foreclosed properties exempt when a property manager paid the bills?

Plain-English summary

The federal government was an exempt organization, and utilities purchased directly by a federal entity for federally owned foreclosed property qualified for exemption. The stated use—whether multifamily residential property or an office building or shopping center—did not change that answer.

A realtor or management company could also make an exempt purchase if it had an agency agreement authorizing purchases on the governmental entity's behalf. Without that agency agreement, the manager's utility purchase was taxable even if the government reimbursed the cost.

Federal ownership shown only by the property's title was not itself enough, and a government-backed VA or FHA loan did not make utility purchases exempt.

Common questions

Were direct federal-entity utility purchases exempt? Yes.

Could a management company obtain the exemption? Yes, with an agency agreement to buy on the government's behalf.

Did reimbursement or a government-backed loan establish exemption? No.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/8906L0946A09

Original ruling text

COMPTROLLER OF PUBLIC ACCOUNTS
STATE OF TEXAS
AUSTIN, 78774

BOB BULLOCK
Comptroller June 27, 1989

Dear *****:

This is to follow up on your previous correspondence regarding
taxability of purchases of natural gas and electricity on fore-
closed properties owned by an entity of the federal government,
i.e., FSLIC, Freddie Mac and/or The Federal Home Loan Mortgage
Corporation.

Your specific questions are outlined below with response:

1. Is the federal government an "exempt organization"?

Answer: Yes.

2. Is the purchase of utility service exempt from the payment of
   state and local taxes whether the utility service be for an exempt
   use (i.e., multi-family residential) or a non-exempt use (i.e.,
   office buildings and shopping centers?

Answer: Yes.

3. If the utility bills are in the name of an entity of the feder-
   al government, but the bills are paid by a management company
   hired to operate the property for the federal government, are the
   utility bills exempt from the payment of state and local sales
   tax?

Answer: Yes

4. Under what conditions, if any, would property in the name of an
   entity of the federal government be subject to state and local
   sales tax on the purchase of utility service?

Answer: The fact that the property is in the name of an entity of
the federal government is not a basis for exemption.

The fact that foreclosed properties are government-backed loans
(VA, FHA, etc.) does not make the utility purchases exempt from
sales tax.

Utilities purchased by a realtor/management company are taxable.
However, if the property is government owned and the
realtor/management company has an agency agreement to make pur-
chases on behalf of the governmental entity, the utilities would
qualify for exemption as a purchase by a government entity. If
there is no such agency agreement, the utilities would be taxable
even though the realtor/management company may receive reimburse-
ment for their expenses.

If the utilities are purchased directly by the governmental enti-
ty, the utilities would qualify for exemption from the tax.

This opinion is based on the facts presented. If there are addi-
tional or different facts, the opinion may change.

If you have any questions or need more information, please feel
free to call me toll free at 1-800-252-5555, extension 3-4666.
You may write to Tax Correspondence, Comptroller of Public Ac-
counts.

Sincerely,
Jo Ann Dieck
Tax Correspondence