Could a homeowners association use Texas's prior-contract exemption for trash service it purchased and separately billed to members?

Plain-English summary

A homeowners association asked whether a prior-contract exemption applied to trash-removal services it bought and billed to residents.

When an HOA bought a mix of taxable and nontaxable services for members and charged one periodic lump sum for the combined services, the Comptroller treated the HOA as the consumer. In that setting, the HOA could use the prior-contract exemption when buying under a contract entered before a change in law.

But an HOA that separately charged for taxable services—or provided only taxable services for one lump sum—was a seller. It had to collect tax from members, issue a resale certificate to its service provider, and could not use the prior-contract exemption for that resale purchase.

Because this HOA separately billed trash removal, it was a seller. Individual members could not claim the prior-contract exemption based on the contract between the HOA and the outside service company, though a separate contract between a member and the HOA might qualify.

What this means for you

How the HOA billed its members changed its role. A combined fee for taxable and nontaxable member services made it a consumer; a separate trash charge made it a reseller responsible for collection.

Common questions

When was the HOA treated as a consumer? When it bought taxable and nontaxable services and billed members one combined periodic fee.

When was it treated as a seller? When it itemized taxable services or provided only taxable services for a lump sum.

What applied to the separately billed trash service? The HOA had to buy it for resale and collect tax from members.

Could members use the HOA's contract with the trash company for the prior-contract exemption? No.

Could a member's own contract with the HOA qualify? The letter said such a contract might qualify.

Citations and references

• November 1988 Texas Tax Bulletin — identified in the letter as taking the same position; no issue or page citation was provided

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9105L1110C06

Original ruling text

May 22, 1991

Dear **:

Thank you for asking whether the prior contract exemption
applies to trash removal services provided by your client.

You are concerned because we expressed an opinion earlier
that the prior contract exemption does not apply when your
client pays for the removal service and then makes a charge
to the residents. A November 1988 Texas Tax Bulletin said
the same thing.

When a homeowner's association (HOA) purchases taxable and
non-taxable services on behalf of the members and bills the
members a lump-sum periodic fee for all combined services,
we consider the HOA the consumer of all the services. In
this case the HOA may avail itself of the prior contract
exemption when purchasing services under a contract entered
into before a change in the law.

However, if the HOA makes an itemized charge for taxable
services, or provides only taxable services under a lump-sum
charge, the HOA is considered a seller of taxable services
and should collect tax from the members on the taxable
services. When the HOA buys the services to resell to the
members, it should issue a resale certificate instead of
paying tax. For this reason the prior contract provision is
not applicable to purchases by the HOA.

Since your client bills the members a separate charge for
the trash removal service, it is a seller and should issue a
resale certificate to the service provider. The individual
members may not avail themselves of the prior contract
exemption for the contract between the HOA and the outside
service company. However, there may exist a contract
between individual members and the HOA that may qualify for
the prior contract exemption.

This opinion is based on the facts presented. Other facts
though similar may provide a different result.

If you have other questions or need more information please
call or write. The toll-free number is 1-800-531-5441; my
extension is 3-4675. The regular number is (512) 463-4675.

Sincerely,

Tom Soto
Tax Administration