Is labor to repair or remodel a dormitory manager's office or cafeteria taxable, and how does that compare to the residential-use rule for apartment complex utilities?

Subject

Apartment Complex — Manager'S Office — Residential Vs. Commercial Use Of Electricity

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9403L1300G06

Plain-English Summary

A dormitory asked the Comptroller whether sales tax applies to labor to repair or remodel the cafeteria area of its dormitory. The Comptroller explained that Texas sales tax law exempts labor to repair, remodel, or restore residential property, and walked through how that exemption applies to a dormitory's manager's office and cafeteria.

For the manager's office, Rule 3.357(a)(9) treats the office as residential property only if the space is the manager's actual home and occupies 5.0% or less of the total space of that residence (not 5.0% of the entire building). The Comptroller noted this policy tracks the parallel rule for residential use of utilities (natural gas and electricity) under Rule 3.295, which defines residential use as use in a multi-family apartment complex or in a portion of a building occupied as a home or residence. Under the Comptroller's long-standing utilities policy for apartment complexes: (1) a manager's office is residential if it is occupied as the manager's home, and (2) a laundry room is residential if the apartment complex itself operates it for tenants, but taxable if a third party operates it.

For the cafeteria, residential vs. nonresidential status turns on the property's use, not who uses it. If the dormitory management operates the cafeteria for the dormitory's residents, the cafeteria is residential. If a food service contractor operates it instead, the cafeteria is nonresidential. Where a single charge covers repair or remodeling of both residential and nonresidential property, the entire charge is taxable if the nonresidential portion is more than 5.0% of the total charge.

The Comptroller could not give a fully definitive answer without more facts about whether the office was actually the manager's home and who operated the cafeteria.

What This Means For You

If you manage or own a dormitory or apartment complex: Whether repair/remodel labor on a manager's office or cafeteria is taxable depends on the specific facts — whether the manager's office doubles as the manager's actual residence (and is 5.0% or less of that residence), and whether the cafeteria is run by the property itself versus an outside food service contractor.

If you bill a mixed residential/nonresidential job under one charge: Watch the 5.0% threshold. If the nonresidential share of a combined repair/remodel charge exceeds 5.0% of the total, the Comptroller treats the entire charge as taxable, not just the nonresidential portion.

If you're evaluating apartment complex utility bills: The same residential-use logic applies to natural gas and electricity under Rule 3.295 — a manager's office is residential utility use only if it's the manager's home, and a laundry room is residential only if the complex (not a third-party operator) runs it for tenants.

Q&A

Q: Is labor to repair a dormitory manager's office always tax-exempt as "residential" work?
A: No. Under Rule 3.357(a)(9), the office counts as residential property only if it is also the manager's home and takes up 5.0% or less of the total space of that residence — not 5.0% of the whole building.

Q: Does it matter who operates the dormitory cafeteria for tax purposes?
A: Yes. If the dormitory itself operates the cafeteria for its residents, the cafeteria is residential property. If a food service contractor operates it, the cafeteria is nonresidential, and repair/remodel labor on it is taxable.

Q: If one invoice covers repair work on both residential and nonresidential parts of a building, how is it taxed?
A: The whole charge is taxable if the amount attributable to the nonresidential portion is more than 5.0% of the total charge for the job.

Citations

• 34 Tex. Admin. Code § 3.357(a)(9) (defining residential property to include a manager's office if it is 5.0% or less of the manager's residence)
• 34 Tex. Admin. Code § 3.295 (defining residential use of natural gas and electricity, including apartment complex manager's offices and laundry rooms)

Original ruling text

March 31, 1994

Dear **:

This is in response to your letter dated February 24, 1994,
regarding sales tax as it applies to labor to repair or
remodel the cafeteria area of the ** dormitory.

The sales tax law exempts the labor to repair, remodel or
restore residential property. Rule 3.357(a)(9) defines
residential property to include the manager's office if the
space occupied by the office is 5.0% or less of the
total space of the residence. This policy contemplates the
office is the manager's residence and the 5.0% guideline
applies to that residence, not the entire building.

This policy tracks the policy concerning the exemption for
residential use of natural gas and electricity (utilities).
Rule 3.295 defines residential use of utilities as use in a
multi-family apartment complex or in a portion of a
building occupied as a home or residence. The Comptroller's
long-standing policy concerning utilities use in apartment
complexes is as follows:

1. Manager's office - residential if the office is
   occupied as the managers home.

2. Laundry room - residential if the laundry room is
   operated by the apartment complex for the tenants' use. The
   utilities are taxable if the laundry room is operated by a
   third party.

The labor to repair the office in a dormitory will be
taxable based on whether or not the office is also the
managers home and whether the office space is 5.0% of less
of the residence, not of the entire building.

The cafeteria's status as either residential or
nonresidential property is determined by the property's use,
not who uses the property. If the dormitory management
operates the cafeteria for the dormitory residents, the
cafeteria will be residential. If the cafeteria is operated
by a food service contractor, the cafeteria is
nonresidential.

The total charge for repairing or remodeling both
residential property and nonresidential property for a
single charge will be totally taxable if the amount
attributable to the nonresidential repair or remodeling
constitutes over 5.0% of total charge.

More specific information about the manager's office and the
operation of the cafeteria will allow us to give you a more
definitive answer to your question.

This opinion is based on the facts presented. Different
facts, though similar, might lead to different answers. If
you have any questions or need more information, please
write or call me toll free at 1-800-531-5441, extension
50330, or 512-475-0330.

Sincerely,

Bettie Peterson
Tax Administration Division

NOTE: Previous Accession Number 9403344L