Can a property management company buy supplies and services tax-free on behalf of FDIC/RTC-owned properties it manages, and can it fix past sales tax it mistakenly paid?

Subject

FDIC/RTC Property Manager's Agent — Sales Tax Exemption Certificate for Purchases on RTC-Owned Property

Plain-English summary

An RTC internal audit found that a property manager had improperly paid sales tax on purchases made for a building owned by the Resolution Trust Corporation (RTC) — even though the RTC itself is exempt from sales tax on its receivership properties. The taxpayer asked the Comptroller's office how a property management company should handle sales tax on purchases for FDIC/RTC-owned properties going forward, and whether anything could be done about the tax already paid.

The Comptroller's office answered that a property management company acting as agent for the FDIC or RTC may issue a sales tax exemption certificate to its vendors at the time of purchase, so long as two things are true: (1) the FDIC or RTC gives the management company documentation showing title to the property was transferred to the FDIC or RTC, and (2) the FDIC or RTC and the management company have a written management agreement designating the management company as agent and authorizing it to make purchases on the agency's behalf. The management company must keep that documentation on file in case of audit.

If those conditions were met at the time the management contract was signed but the property manager simply failed to issue exemption certificates at the time of purchase, the ruling says the manager can still go back and issue exemption certificates to its vendors for purchases made within the four-year statute of limitations.

What this means for you

Property management companies handling FDIC/RTC-owned property

If you manage property owned by the FDIC or RTC, you can buy taxable items and services tax-free on the agency's behalf by issuing an exemption certificate to your vendors — but only if you can show (a) documentation that title passed to the FDIC/RTC, and (b) a written management agreement naming you as the agency's agent authorized to purchase on its behalf. Keep both documents on file for audit purposes.

If you already paid tax by mistake

If you had a qualifying agency relationship in place but didn't issue exemption certificates at the time of purchase, this ruling says you are not out of options — you can still issue exemption certificates to your vendors for purchases made within the four-year statute of limitations, which can support a refund claim.

Accountants and tax professionals advising receivership property managers

The key takeaway is that the exemption follows from an agency relationship, not from the RTC/FDIC's own exempt status alone. Without the ownership documentation and a written agency-designating management agreement, a management company's purchases are not entitled to the exemption, regardless of who ultimately owns the property.

Common questions

Q: Does the RTC/FDIC's tax-exempt status automatically extend to a property manager's purchases?
A: No. The property manager must separately qualify to issue exemption certificates as the FDIC/RTC's agent — it needs documentation that title is in the FDIC/RTC's name and a written management agreement designating it as agent authorized to purchase on the agency's behalf.

Q: What documentation does a property management company need to keep?
A: Documentation from the FDIC or RTC showing title to the managed property was transferred to the FDIC or RTC, and the written management agreement designating the company as agent and authorizing it to make purchases on the agency's behalf. This must be kept in the company's files in case of audit.

Q: We paid sales tax on purchases for an RTC-owned property but never issued an exemption certificate — can we fix that now?
A: According to this ruling, if the agency criteria were met at the time the management contract was executed, the property manager can still go back and issue an exemption certificate to vendors for purchases of taxable items within the four-year statute of limitations.

Q: Can I rely on this letter for my own situation?
A: Not directly. This is a Texas Comptroller letter ruling addressed to a specific taxpayer based on the facts presented to the Comptroller's office; it states outright that "[o]ther facts though similar may provide a different result." It shows how the Comptroller's office reasons about agent-issued exemption certificates for RTC/FDIC properties, but you should confirm your own facts with a tax professional or the Comptroller's office.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9305016L

Original ruling text

May 19, 1993

Dear **:

This is in response to your inquiry concerning the exemption from sales tax of
the Resolution Trust Corporation (RTC) for properties under its control.

SITUATION

The RTC's office of Inspector General presented to the ** RTC
office its final audit of RTC's management of the ** and the
**, both of which are located in **, Texas and both of
which were owned by ** of **, FA, a receivership in
**, Arkansas. This audit covered the period 1/1/91 through 1/31/92.

The audit found that even though the RTC is exempt from sales taxes on its
receivership operations, the property manager of the ** building
improperly paid a total of $** in sales taxes to the State of Texas
during the period 7/1/91 through 1/31/92. According to the audit report, RTC
can obtain refunds of any of these taxes paid in error.

RESPONSE

The Comptroller's office has established criteria to allow a property
management company to make tax-free purchases of taxable items (tangible
personal property and services), via issuance of an exemption certificate, for
properties owned by the RTC/FDIC. A property management company acting on
behalf of the RTC/FDIC may issue an exemption certificate on behalf of these
agencies, at the time of purchase, if the following conditions are met:

The FDIC or RTC provides documentation to the management company showing that
title to the property being managed was transferred to the FDIC or RTC.

The FDIC or RTC had entered into a written management agreement with the
management company that designated the management company as its agent and
authorized the management company to make purchases on its behalf. The
management company must keep this documentation in its files in the event of
audit by this agency.

If the above criteria had been met between the RTC and the property manager, at
the time the management contract was executed, the property manager could have
issued exemption certificates to service providers in lieu of state and local
sales taxes for purchases of taxable items for these qualifying properties. If
the criteria was met and the property manager failed to issue exemption
certificates at the time of purchase, it may still go back and issue an
exemption certificate to vendors for purchases of taxable items within the four
year statute of limitations.

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, you may call me at 1-800-5315441, extension 3-4502. The regular
number is 512/463-4600. You may also write to Tax Administration Division at
the above address.

Sincerely,

Gilbert Zamora
Tax Administration Division