Texas Letter Ruling 9211L1209G06: Homeowners/Property Owners Association — Taxable Services (Cable Television, Landscaping, Garbage/Trash Pick — Up) And Nontaxable Services Provided To Members — Billings

Plain-English summary

This is a short 1992 letter from the Texas Comptroller's Tax Administration Division answering a property owners association's question about how it bills members for services like cable television.

The Comptroller explained that if the association (referred to as "Association") buys a mix of taxable and non-taxable services on behalf of its members and bills members one combined, lump-sum periodic fee covering everything, the association is treated as the consumer of those services. That means the association pays sales and use tax to its own vendors, and it does not need to collect tax from members.

Alternatively, the association could choose to act as a seller: separately state the charges for taxable services on member bills and collect sales and use tax from members directly. If it does this, it must hold a sales and use tax permit, file sales and use tax returns, and it can buy the taxable items tax-free from its vendors by issuing resale certificates.

The letter also addresses a wrinkle specific to this association: it passes along an extra charge for "Excess Users" of cable television to members who use more than a normal amount of cable service. The Comptroller ruled that the association can still be treated as a consumer (not a seller) of the cable service as long as the "Excess User" fee is a dollar-for-dollar reimbursement of the association's actual cost. If the association marks up that cost when charging members, it becomes a seller of the cable television service for that portion.

The Comptroller noted the ruling is based on the facts presented and could change if the facts are different.

What this means for you

Property owners associations / homeowners associations (HOAs)

If your association buys bundled services (for example, cable TV, landscaping, or trash pickup) for the community and bills members one combined periodic fee, you can simply pay sales tax to your vendors like any other consumer — you don't need a sales tax permit or to collect tax from members for that arrangement. If you'd rather itemize and collect tax directly from members on the taxable portions, you can register as a seller, get a permit, file returns, and buy those taxable items tax-free using resale certificates.

Associations that pass through "excess usage" charges

If some members use more of a service (like cable) than others and you pass along the extra cost, keep that pass-through at cost — a straight dollar-for-dollar reimbursement. Under this ruling, doing so keeps the association a consumer rather than a seller for that service. Adding any markup to the passed-through cost turns the association into a seller of that service, triggering permit, collection, and filing obligations for it.

Accountants and tax professionals advising HOAs

This letter is a useful illustration of the consumer-vs-seller line for associations bundling taxable and nontaxable services into one fee, and of how a cost pass-through (no markup) differs from a marked-up resale for sales tax purposes. Note that the letter does not cite any specific Tax Code section or Comptroller rule — it applies general consumer/seller principles to the facts described by the association's own letter.

Common questions

Q: Does our property owners association need a sales tax permit just because it buys cable TV service for the neighborhood?
A: Not necessarily. If you bill members a lump-sum fee that combines taxable and non-taxable services, the association can be the consumer and simply pay tax to its vendors — no permit or member-facing tax collection required for that arrangement.

Q: What if we want to itemize and charge members sales tax directly on the taxable services?
A: You can do that, but then the association is acting as a seller. It needs a sales and use tax permit, must file sales and use tax returns, and can use resale certificates to buy the taxable items tax-free from vendors before reselling them to members.

Q: We charge certain members extra for using more cable TV than average. Does that make us a seller of cable service?
A: Not if the extra "Excess User" charge is a dollar-for-dollar reimbursement of the association's actual cost. It only becomes a sale (making the association a seller of cable television service) if the association marks up that cost when billing the excess-usage members.

Q: Can we rely on this exact letter for our own association?
A: This letter was issued to a specific taxpayer based on the facts they described in 1992, and under Comptroller rules a STAR letter can only be relied upon by the taxpayer it was issued to. It's useful for understanding the Comptroller's general approach, but your association's facts should be confirmed with your own tax advisor or a new request to the Comptroller.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9211L1209G06

Original ruling text

November 20, 1992

Dear **:

Thank you for your letter concerning a property owners association.

If the property owners association (Association) purchases taxable and
non-taxable services on behalf of the members and bills the members a lump-sum
periodic fee for all combined services, the Association is allowed to be the
consumer of all the services and pay the applicable sales and use tax to the
vendors.

Of course, the Association could choose to be a seller by separately stating
charges for taxable services and collecting sales and use tax from the members.
As a seller, the Association would need a sales and use tax permit and would
have to file sales and use tax returns. The Association could purchase the
taxable items sold to members tax-free by issuing resale certificates.

In your situation, the Association has an additional expense for "Excess Users"
of cable television services. The Association passes the expense to certain
members who have more than normal usage of cable television services. You ask
how this affects the treatment of the Association as a consumer rather than a
seller.

The Association is regarded as the consumer of the cable television services as
long as the additional fee charged to certain members as "Excess Users" is a
dollar-for-dollar reimbursement to the Association. If the Association were to
mark-up the cost of the cable television services for sale to the members, then
the Association is a seller of cable television services.

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

You may call me toll free at 1-800-252-5555, ext. 5-0030. The direct line is
512/475-0030. You may also write to Tax Administration, Comptroller of Public
Accounts.

Sincerely,

David Somerville
Tax Administration Division