Did a homeowners association owe Texas sales tax on swimming-pool maintenance, and could it avoid tax with a federal ID number?

Plain-English summary

The Comptroller told a homeowners association that swimming-pool maintenance was a taxable real-property service whether the pool was next to a residential or commercial structure. A separate "maintenance insurance" charge from the pool management company was also taxable as part of the total charge for taxable services.

The letter distinguished maintenance from repair and remodeling labor. It said labor to repair or remodel a residential pool was not taxable, while repairing or remodeling a commercial pool was taxable on both materials and labor.

A federal identification number did not automatically exempt the association from Texas tax. If the nonprofit association held IRS tax-exempt status, it could apply for Texas sales-and-use-tax exemption. The pool company had to keep collecting tax until the Comptroller approved the exemption and stated its effective date.

After approval, the association could issue exemption certificates for taxable items and services bought directly by it or an authorized agent for its exempt purposes. Individual members could not make tax-free purchases for their own use. The pool company could refund or credit tax collected after the exemption's effective date.

What this means for you

This letter separates three issues that are easy to blur: pool maintenance, pool repair or remodeling, and the customer's exemption status. Residential treatment affected repair/remodeling labor, but it did not make routine pool maintenance nontaxable.

Common questions

Was residential-subdivision pool maintenance taxable? Yes. The letter said location next to a residential or commercial structure made no difference for maintenance.

Was residential pool repair labor taxable? The letter said no, while commercial-pool repair or remodeling was taxable on materials and labor.

Was a separate maintenance-insurance charge taxable? Yes, as part of the total charge for taxable services.

Did a federal ID number prove Texas exemption? No. The association needed written Texas approval.

Could the pool company stop collecting tax while the application was pending? No. It had to collect until the association received notice of exempt status.

Citations and references

• 34 Tex. Admin. Code Rule 3.356 — real-property services
• 34 Tex. Admin. Code Rules 3.291 and 3.357 — repair and remodeling treatment cited by the letter
• 34 Tex. Admin. Code Rule 3.322 — tax-exempt organizations

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9104L1109A06

Original ruling text

COMPTROLLER OF PUBLIC ACCOUNTS
STATE OF TEXAS
AUSTIN, 78774

April 29, 1991

Dear ****:

Thank you for your recent letter. As I understand it, your organization
is a home owners association. I have restated your specific questions below.

Question 1: Is swimming pool maintenance in a residential
subdivision taxable?

Answer: Swimming pool maintenance is a taxable real property service. It
makes no difference whether the pool is adjacent to a residential or a
commercial structure. See enclosed Rule 3.356 for more on real property
services.

I think confusion has arisen because residential and commercial swimming
pools are treated differently when it comes to labor for repair and remodeling.
There is not tax on the labor to repair or remodel a residential swimming
pool. However, repairing or remodeling a commercial pool is a taxable service,
materials and labor included. See enclosed Rules 3.291 and 3.357 for more on
this.

Question 2: Is maintenance insurance for a swimming pool taxable?

Answer: I assume this means you are being charged tax for "maintenance
insurance" by the pool management company in addition to their other service
charges. This charge is taxable as part of their total charge for taxable
services.

Question 3: May we give the pool management company a Federal
exempt number instead of paying Texas tax?

Answer: No. A Federal I.D. number does not automatically exempt a person
or organization from Texas taxes.

Question 4: Now may we obtain tax-exempt status from the State of
Texas?

Answer: If the Association is a nonprofit organization with tax-exempt
status from the IRS, then the Association may qualify for exemption from Texas
sales and use taxes as well. To apply, send a copy of your IRS letter of
exemption to this office, to the attention of ** , Tax Administration
Division. You should attach a cover letter describing your organization and
requesting exemption from Texas sales tax. If you are incorporated, you should
also request exemption from the franchise tax. See enclosed Rule 3.322 and a
Bulletin on Tax Exempt Organizations for more. Mr. Rogers will notify you in
writing whether or not you qualify for exemption from Texas tax.

If you qualify,**'s letter will tell you the effective date of
your exemption. From that date forward, you would be entitled to issue an
exemption certificate to the pool management company instead of paying sales
tax on swimming pool maintenance. You would also be entitled to issue
exemption certificates for other taxable items and services that are purchased
directly by the Association, or by an authorized agent, for the exempt purposes
of the organization. Of course, individual members of the Association would
not be entitled to make tax-free purchases for their own use or benefit.

Question 5: How do we handle this with the pool company?

Answer: The pool management company is required to collect tax until and
unless you have received notice of exempt status from this office. If the tax
exemption is granted, then they may accept from you a blanket exemption
certificate instead of tax. They will not then be required to collect tax from
you as long as the Association remains tax exempt. Also, they may refund to
you (or, with your written approval, may credit your account for) any tax
collected after the effective date of your exemption.

This opinion is based on the facts presented. Different facts, though
similar, might lead to different answers. If you have further questions, feel
free to write or call
1-800-252-5555. My direct extension is 3-3889.

Sincerely,
John Christian
Tax Administration