Did affiliated-entity treatment exempt security services supplied by a property manager's wholly owned subsidiary and rebilled to an unaffiliated shopping-mall owner?

Plain-English summary

The property management company had to collect tax on security services provided at the shopping mall by its wholly owned subsidiary's employees.

Those workers belonged to a separate legal entity rather than the property manager or mall, even if permanently assigned to the property. The manager therefore purchased a taxable service from persons other than its own employees under Rule 3.356(m)(5).

The affiliated-entity service exemption in section 151.346 did not transfer through the subsidiary and manager to the unaffiliated mall owner that purchased the service.

Common questions

Did wholly owned status merge the companies for this tax issue? No.

Did permanent assignment to the mall make the workers the mall's employees? No.

Did the manager collect tax from the mall owner? Yes.

Citations and references

• Tex. Tax Code § 151.346.
• Comptroller Rule 3.356(m)(1) and (5).

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9006L1027B03

Original ruling text

June 15, 1990

Dear ****:

Thank you for your letter dated May 29, 1990, concerning the taxability
of security services provided by the employees of a property management
company's wholly-owned subsidiary at a shopping mall.

The property management company must collect sales tax on the charge
for security services provided by its subsidiary for the shopping mall
owner.

Section (m) (1) of Rule 3.356-Real Property Services does not apply to
the situation that you described. The persons providing the security
services are employees of a separate legal entity (the subsidiary) not
the property management company or the shopping mall (even if permanently
assigned to that property).

Section (m)(5)is the appropriate section of the rule for this situation.
The property management company is apparently purchasing a taxable service
from "persons other than employees of the management company." The
property management company must collect sales tax on the charge to the
shopping mall owner for security services. The exemption in 151.346 for
service transactions between affiliated entities does not transfer or
extend to non-affiliated entities that purchase the service from one of
the affiliates.

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

Please feel free to contact me if you have any additional questions.
You may write me, call toll free 1-800-252-5555 (ext. 3-4685) from anywhere
in the United States or phone 512/463-4685.

Sincerely,

Julie Pesl
Tax Correspondence