Does an apartment complex have to perform its own predominant use study before claiming a sales tax exemption on electricity from a master meter that serves only common-area/residential uses?

Plain-English summary

An association wrote to the Texas Comptroller's Tax Policy Division about predominant use studies for utilities purchased for apartment complexes. It submitted three utility studies for Austin-area complexes ranging from 80 to 396 units. In each case, the electric meters were master meters that did not serve any residences (vacant or occupied); instead, they covered a mix of commercial use (the onsite management office) and residential common-area uses such as club rooms, laundry rooms, swimming pool pumps, and outside lighting. The three studies showed taxable (nonresidential) usage of 11% to 23%. The association asked the Comptroller to state that master meters providing electricity to onsite management offices in this kind of setup should be exempt from sales tax without every individual property having to conduct its own predominant usage study.

The Comptroller agreed, with limits. Apartment complexes that fit this same scenario — a master meter not serving any residences, mostly powering common-area/residential-type uses alongside the management office — may submit an exemption certificate directly to the utility company without performing a utility study. Field auditors were to be notified that the exemption would not be denied to a complex solely because it lacked a study. However, an auditor may still require a study if the auditor believes a particular complex differs enough from this scenario that predominant residential use is in doubt.

The letter is explicit that this is a convenience measure for "fairly obvious cases of predominant residential use," not a blanket exemption. It does not bar the assessment of unpaid tax if predominant usage turns out to be nonresidential. For example, if an auditor found significant nonresidential usage — such as office suites or daily/weekly rental pools — and a study showed less than 50% exempt usage, the auditor would still assess tax, penalty, and interest as appropriate.

What this means for you

Apartment complex owners and property managers

If your master meter serves only common areas like laundry rooms, club rooms, pool pumps, and outside lighting plus the onsite management office — and no actual living units are on that meter — you generally don't need to commission your own predominant use study before giving the utility company an exemption certificate. This can save the cost of an individual study in the clear-cut cases the letter describes.

Complexes with more commercial-type usage

If your complex has meaningful nonresidential usage beyond a management office — for instance, office suites or short-term/daily-weekly rental pools — don't assume this letter covers you. An auditor can still ask for a study, and if that study shows less than 50% exempt usage, the auditor can assess back tax, penalty, and interest.

Accountants and tax professionals

This is a facts-specific accommodation built around the 11%-23% taxable usage shown in three submitted studies for 80-to-396-unit Austin-area complexes with master meters that don't serve residences. It relieves the burden of a study in obvious cases, but doesn't change the underlying predominant-use standard auditors apply, and it preserves the auditor's ability to assess tax where usage is genuinely more commercial.

Common questions

Q: Does every apartment complex now get a utility sales tax exemption without a study?
A: No. This applies to complexes whose master meter doesn't serve any residences and is used predominantly for residential-type common areas (club rooms, laundry rooms, pool pumps, outside lighting) plus the management office, based on studies showing 11%-23% taxable usage.

Q: Can an auditor still ask for a study?
A: Yes. An auditor may request a study if the auditor believes a specific apartment complex differs from this scenario enough that predominant residential usage is in doubt.

Q: What happens if a study later shows usage isn't predominantly residential?
A: The auditor can still assess tax, penalty, and interest as appropriate — for example, if significant nonresidential usage (like office suites or rental pools) means less than 50% of usage is exempt.

Q: Who at the Comptroller's office issued this letter?
A: Wade Anderson, Director, Tax Policy, responded, and noted that Karey Barton, Manager, Tax Policy, could also be contacted with additional questions.

Citations and references

No statutes or administrative rules are cited by section number in this letter.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9511223L

Original ruling text

November 27, 1995

Dear **:

Thank you for your letter of November 2, 1995, concerning predominant use
studies for utilities purchased for apartment complexes.

The association submitted three utility studies for apartment complexes located
in the Austin area. The complexes varied in size containing from 80 to 396
units. The studies were for electric meters that included both commercial use
(management office) and residential uses such as club rooms, laundry rooms,
swimming pool pumps, and outside lighting. The master meters did not service
any residences (vacant or occupied). The studies indicate taxable usage of 11%
to 23%. You have requested that this office issue an opinion stating that
master meters providing electricity to onsite management offices should be
exempt from sales tax without each individual property having to conduct a
predominant usage study.

Apartment complexes fitting the above scenario may submit an exemption
certificate to utility companies without performing a utility study. Our field
auditors will be notified that the exemption will not be denied to apartment
complexes solely due to the absence of a study. An auditor may request that a
study be performed if the auditor is of the opinion that the apartment complex
in question differs from the above scenario to the extent that predominant
residential usage is in doubt.

This agreement is expressly made to save apartment complexes the cost of
performing individual studies in fairly obvious cases of predominant
residential use. It does not bar assessment of any unpaid taxes when the
predominant usage is found to be nonresidential. For instance, if the auditor
determined that the complex had significant nonresidential usage such as office
suites, daily or weekly rental pools, etc., and a study showed that less than
50% of the usage was exempt, the auditor would assess tax, penalty and interest
as appropriate.

Should you have any additional questions, please do not hesitate to contact me
or Karey Barton, Manager, Tax Policy, toll-free at 1-800-531-5441, extension
3-4987.

Sincerely,

Wade Anderson
Director, Tax Policy

cc: Glen Hunt, Director, Research & Policy Development
Karey Barton, Manager, Tax Policy