Is electricity used in vacant apartment, duplex, condominium, or townhouse units exempt from Texas sales tax as residential use?

Subject

Apartment Complex/Multifamily Dwelling — Vacant Units — Residential Use Of Electricity Guidelines

Plain-English summary

A taxpayer wrote to the Comptroller with nine specific questions about when electricity used in vacant residential units is exempt from sales tax as "residential use." The Tax Policy Division answered each one:

1. Vacant house, no occupants: Not exempt -- "a vacant house is not a dwelling."
2. Vacant half of a duplex: A duplex is a multifamily housing complex, and being only half-occupied doesn't eliminate the exemption for the unoccupied half.
3. New apartment complex filling up unit by unit: Only one unit needs to be occupied as a residence to qualify the whole complex for the exemption. Once one family moves in, electricity in the other vacant units and the common facilities is treated as residential.
4. Vacant model apartment used for demonstration: Not exempt, because it's being used to promote business (like a manager's office), not as a residence.
5. Length of vacancy: Doesn't matter -- how long a unit sits vacant has no effect on the exemption.
6. Units rented for less than 30 days: Not exempt. A unit available for rental for under 30 days isn't residential use, so a complex with such units becomes "mixed-use," and electricity in those short-term vacant units is taxable, like an office.
7. Vacant condominium unit: Exempt, as long as the unit isn't available for rental for less than 30 days.
8. Vacant townhouse unit: Exempt under the same 30-day rule, but only if the townhouse shares common walls with other townhouses (part of a multifamily complex). A stand-alone townhouse with no shared walls is judged under single-residence rules instead.
9. Exemption certificates when an account changes to a commercial name: A utility company doesn't need a new certificate every time an individual unit becomes vacant and the account name switches to the property manager's commercial name. A blanket certificate in the commercial name, stating it covers all units at that address, is enough (assuming the units are used only as residences).

What this means for you

Apartment, condo, and townhouse owners/operators

The exemption for electricity in vacant units generally follows the status of the complex, not the individual unit: get one unit occupied as a residence, and the rest of the complex's vacant units and common areas ride along as exempt. But watch two traps -- model/demo units stay taxable no matter what, and any unit (in an apartment, condo, or townhouse complex) marketed for rental under 30 days is treated as non-residential and taxable.

Utility companies serving multifamily housing

You can rely on a single blanket exemption certificate in the property manager's commercial name to cover future vacancies across a residential property, instead of collecting a new certificate every time an individual tenant moves out and the billing name changes. The certificate should state it applies to all units at the address.

Accountants and tax professionals

When advising owners of mixed-use or partially vacant residential properties, check unit-by-unit whether any units are rented short-term (under 30 days) -- that alone converts those units' electricity to taxable use and can make an otherwise-residential complex "mixed-use" for this purpose. Also flag stand-alone townhouses (no shared walls) as governed by single-residence rules rather than the multifamily-complex rules.

Common questions

Q: Is electricity exempt in a completely vacant, unoccupied house?
A: No. The ruling states "a vacant house is not a dwelling," so the exemption doesn't apply.

Q: How many apartment units have to be occupied before the whole complex qualifies for the residential exemption?
A: Just one. Once one family resides in the complex, electricity in the remaining vacant units and common facilities is considered residential.

Q: Is a vacant "model" apartment used to show prospective tenants exempt?
A: No. Because it's used for demonstration/business promotion rather than as a residence, it doesn't qualify.

Q: Does it matter how long a unit has been vacant?
A: No, the letter says the length of vacancy has no effect on whether the exemption applies.

Q: What if a unit is normally rented for less than 30 days?
A: It's taxable, not exempt -- a unit available for rental under 30 days is not residential use, and this can make the complex "mixed-use."

Q: Are vacant condominium and townhouse units treated the same as apartments?
A: Largely yes, subject to the same 30-day rule. A townhouse also needs to share common walls with other townhouses to be judged under multifamily-complex rules; a stand-alone townhouse follows single-residence rules instead.

Q: Do utility companies need a new exemption certificate every time a unit's billing name switches from a tenant to the property manager?
A: No. A blanket certificate in the commercial name covering all units at the address is sufficient, so long as the units are used only as residences.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9610L1431G02

Original ruling text

COMPTROLLER OF PUBLIC ACCOUNTS
STATE OF TEXAS
AUSTIN, 78774

October 3, 1996

Dear **:

I am sorry not to have answered your letter of
September 20, 1996, concerning the status of electricity used under varying
circumstances. I have been out of town on business all but two days during
the last two weeks.

You asked the following questions:

1. Is electricity used in a vacant house by its owner
   exempt?

Answer: No, a vacant house is not a dwelling.

2. If the answer to number 1 is "no" on the grounds
   that a vacant house is not a "family dwelling" because a family is not dwelling
   therein, is the use of electricity in the vacant half of a duplex exempt as the
   use of electricity in a "multifamily housing complex" by its owner, or is such
   use taxable on the grounds that a half-occupied duplex is not a "multifamily
   housing complex" since only one family is living therein?

Answer: A duplex is a multifamily housing complex.
The fact that it is not fully occupied at the time does not eliminate the
exemption for the unoccupied portion of the duplex.

3. Similarly, how many units in an apartment complex
   must be occupied before the complex qualifies as a "multifamily apartment
   complex," one unit or more than one unit? For example, a newly constructed
   apartment complex may consist of several buildings with a number of units in
   each apartment building and other buildings for common facilities. Tenants
   will sign their leases and move in one unit at a time. When does the complex
   become a "multifamily apartment complex," when the first family signs its lease
   or when the second family signs its lease? Once the newly constructed complex
   becomes a "multifamily apartment complex," is the electricity in the common
   facilities and all of the remaining vacant units exempt even though they have
   never been occupied?

Answer: One unit only needs to be occupied as a
residence to qualify the apartment complex for the exemption. Therefore, when
one family resides in the complex, the use of the electricity in the other
units of the complex and in the common facilities will be considered
residential.

4. Is the use of electricity in a vacant model
   apartment that is part of a "multifamily apartment complex," but that is used
   for demonstration purposes only, exempt?

Answer: No. Residential use does not include
electricity used in apartments that are used for purposes other than
residences, e.g. the manager's office. Because the vacant apartment is used to
promote business, and not used as a residence, the electricity does not qualify
for the exemption.

5. Does the length of time that an apartment within a
   "multifamily apartment complex" remains vacant have any effect on whether
   electricity used by its owner therein should be considered exempt?

Answer: No.

6. If one or more apartment units within a
   "multifamily apartment complex" is rented for less than 30 days, is electricity
   used by the owner in either those units when vacant, or other vacant units that
   are normally rented for 30 days or more, exempt?

Answer: If a unit is available for rental for less
than 30 days, its use is not for residential purposes. Therefore, a complex
that contains units rented this way would be a mixed-use complex, and the
electricity used in vacant apartments that are available for rental for less
than 30 days would be taxable just as the electricity used in an office would
be taxable.

7. Is electricity used by the owner in a vacant
   condominium within a multifamily condominium housing complex exempt?

Answer: Yes, so long as the unit is not available for
rental for less than 30 days.

8. Is electricity used by the owner in a vacant
   townhouse within a multifamily townhouse complex exempt?

Answer: Yes, so long as the unit is not available for
rental for less than 30 days and is not a stand alone residence. If the
townhouse does not share common walls with one or more other townhouses, it is
considered a single residence and should be judged by single residence rules.

9. Is a utility company required to either collect
   sales tax or obtain an exemption certificate every time a customer account name
   changes from an individual to a commercial name, i.e., an apartment or property
   management name, indicating that an individual unit has become vacant?

Answer: Assuming the apartments are used only for
residences, the utility company may accept a blanket certificate in the
commercial name for all future vacancies and need not require a new certificate
every time a customer name changes. A certificate should state that it
pertains to all units located at this address.

I hope this satisfactorily answers your inquiries.

Sincerely,
Wade Anderson
Director Tax Policy