Was an apartment manager's office and lobby residential or nonresidential for repair-and-remodeling tax, and was the 5% test applied per building or complex?

Plain-English summary

The residential-versus-nonresidential calculation was made for each structure, not across all buildings in the apartment complex, and it used square footage rather than cubic footage.

If the manager's office and lobby occupied less than 5% of a building, that space was treated as residential. If it exceeded 5% of the particular building—even though it was under 5% of the complex as a whole—the office and lobby were nonresidential. A separate building used solely as the office and lobby was entirely nonresidential.

Repair, remodeling, or restoration of the nonresidential office or lobby was taxable. For mixed work on the entire building, the total charge was taxable unless labor for the residential portion was separately stated.

Common questions

Was the 5% test based on the entire apartment complex? No, it was applied per building.

What measurement controlled? Square footage.

Was a separate office building residential because it was under 5% of the whole complex? No.

Citations and references

• 34 Tex. Admin. Code Rule 3.357

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9001L0974A01

Original ruling text

January 11, 1990

Dear *****:

Your inquiry addressed to Tom Soto of this agency has been forwarded to me for
response. You inquiry relates to the qualification of an apartment manager's
office as residential property.

As you indicated in your letter:

1. The previous correspondence that you received from this office stated
   that the calculation to determine if the manager's office is commercial or
   residential is based on the amount of space used as the manager's office
   divided by the amount of total space in the apartment complex.

2. This agency considers the manager's office as commercial property if
   the office is located in a separate building.

I have restated the fact situations presented in your letter with an
appropriate response regarding the application of Rule 3.357:

Situation 1

You have one apartment building in the complex. The space used for the
manager's office and the lobby consists of less than 5% of the total interior
space of the complex.

Response

Since the Manager's office and lobby occupy less than 5% of the structure, the
office is considered residential for the purposes of Rule 3.357.

Situation 2

You have an apartment complex consisting of three buildings. In one of the
buildings, 25% of the total interior space of that building consists of the
manager's office and the lobby to the manager's office. Although the space
used as the manager's office and the lobby consist of 25% of that one building,
the total space for the manager's office and the lobby consists of less than 5%
of the total interior space of the complex.

Response

The manager's office and lobby will be considered nonresidential since it is
more than 5% of the space in the building. That is, the determination is based
on the footage in the structure, not all structures in the complex. The
remainder of the building where the office was located and the other two
buildings would qualify as residential.

Situation 3

You have an apartment complex with 3 buildings. One of the buildings consists
solely of the manager's office and the lobby of the manager's office. Although
the manager's office is within a separate building, the total space used for
the manager's office and the lobby consists of less than 5% of the total
interior space of the complex.

Response

The entire building housing the manager's office and lobby is considered
nonresidential since more than 5% of the space in the building is used for the
office and lobby. The other two buildings used for apartments are considered
residential.

Charges to repair, remodel, or restore the manager's office or lobby in
situations 2 and 3 are taxable. If these services are performed on the entire
building in situation 2, the total charge is taxable unless the labor on the
residential portion is separately stated. I have enclosed Comptroller's Rule
3.357 (Real Property Repair and Remodeling) which addresses the taxability of
these services.

Finally, you should note that the calculations to determine residential and
nonresidential space are based on square footage, not cubic footage.

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

If you have any questions, please contact Tax Correspondence. You may call
toll free
1-800-252-5555, or our regular number is 512-463-4600. My extension is 3-4662.

Sincerely,

Bob Jeffcoat
Tax Correspondence