Was electricity for condominium common areas exempt as residential use when about 30 of 114 units were rented to the public, usually for fewer than 30 days?

Plain-English summary

The homeowners association's electricity refund was denied because the condominium common areas supported both residential owners and short-term rental activity.

The complex had 114 residential units, and about 30 owners rented their units to the public, usually for fewer than 30 days. Electricity for jointly owned common areas intended solely for members could be exempt residential use. But rentals under 30 days were subject to hotel tax and were not residential, so shared common areas serving those units had both residential and commercial use. The common-area electricity was therefore taxable on the stated facts.

The letter identified limited ways an exemption could apply: separate resident-only common areas, such as a swimming pool, recreation area, or separate building lighting, could qualify if separately metered. On a single meter, the electricity could be fully exempt if it was used predominantly for those separated resident common areas.

What this means for you

An HOA's residential label did not by itself exempt common-area electricity. Short-term rental use changed the common areas' character unless resident-only areas and their electricity use were adequately separated under the conditions described in the letter.

Common questions

Why were the short-term rentals treated as commercial? The letter says rentals under 30 days were subject to hotel tax and were not residential use.

Was all common-area electricity automatically taxable? It was taxable under these mixed-use facts.

Could separate resident-only common areas qualify? Yes, if separated and separately metered.

What if one meter served the property? The letter said a full exemption could apply if electricity on that meter was used predominantly for separated resident common areas.

Citations and references

The letter cited no specific statute or administrative rule.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9204038L

Original ruling text

April 16, 1992

Dear **:

The sales tax refund that you submitted on behalf of CONDOMINIUM CONSTRUCTION
PROJECT has been reviewed.

The sales tax refund on electricity is requested by the Homeowners Association
for the period January 1988 forward. You stated that the electricity is
purchased for the common areas for 114 residential dwellings. Of the 114 units,
approximately 30 of the owners rent their units to the general public on terms
that in most cases are for less than 30 days.

The exemption for utilities purchased by homeowners association for common
areas is considered residential use and exempt from tax if:

1. the areas are jointly owned by the members of the homeowners association,
   and

2. the areas are specifically intended for the sole use of the members.

The electricity does not qualify for sales tax exemption under the above
conditions.

Because this is a condominium complex, the electricity for common areas for the
residents' use would be considered residential use; however, when units are
rented out for periods of less than 30 days (subject to hotel tax and not
residential), the common areas are for both residential and commercial use and
the electricity is taxable. Only in situations where there are separate common
areas for residents (e.g., swimming pool, recreation area, separate building
lighting) could any exemption apply. The electricity would be 100% exempt if
the common areas are separated and separately metered or the electricity on a
single meter is predominantly for the separated common areas for residents.

The electricity does not qualify for sales tax exemption under the above
conditions.

Based on all of the facts presented, sales tax exemption and refund are denied.
Enclosed is a copy of "The Rules of Practice & Procedure" regarding refund
hearings.

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

If you have any questions or need additional information, you may call me toll
free at 1-800-252-5555, extension 3-4666. You may also write to Tax
Administration Division.

Sincerely,

Jo Ann Dieck
Tax Administration Division