Is electricity used in the common areas of a residential condominium complex (sprinkler systems, pools, clubhouses, exterior lighting) exempt from Texas sales tax as residential use?

Plain-English summary

A taxpayer asked about the taxability of electricity purchased for common-area equipment (sprinkler systems, swimming pools, clubhouses, exterior lighting) at a number of condominium complexes and residential subdivisions.

The Comptroller drew a clear line based on the type of complex. A residential condominium complex -- one where units are owner-occupied and any units that are rented are rented for periods longer than 30 days -- gets exempt residential treatment for common-area electricity. A mixed-use condominium complex -- one that includes units rented to tenants for periods of 29 days or less (i.e., short-term/vacation rentals) -- doesn't automatically qualify; instead it must establish the exemption based on the complex's predominant use, under Rule 3.295. The letter then confirms, complex by complex (with taxpayer-identifying names redacted), that electricity purchased by the listed councils of co-owners, condominium/homeowners associations, and property owners associations for their residential complexes' or subdivisions' common areas is exempt.

What this means for you

Condominium associations, HOAs, and property owners associations

Common-area electricity for a genuinely residential condo complex (owner-occupied, no short-term rentals under 30 days) is exempt. If your complex includes units rented for 29 days or less, you can't assume automatic exemption -- you'll need to establish predominant residential use under Rule 3.295.

Timeshare and short-term-rental condo operators

Because timeshare/rental-pool units often involve stays shorter than 30 days, common-area electricity for those complexes falls into the "mixed-use" category and requires a predominant-use analysis rather than automatic residential exemption.

Common questions

Q: Is common-area electricity at a residential condominium exempt from Texas sales tax?
A: Yes, per this letter, if the complex is owner-occupied and any rentals run longer than 30 days.

Q: What if some units are rented out short-term (under 30 days)?
A: Per this letter, that makes it a "mixed-use" condominium complex, which must qualify for the exemption based on predominant use under Rule 3.295, rather than getting automatic residential treatment.

Q: Does the exemption apply to electricity purchased by a homeowners association rather than individual owners?
A: Yes -- per this letter, electricity paid for by councils of co-owners, condominium/homeowners associations, or property owners associations for common-area equipment is exempt as long as the underlying complex or subdivision is residential.

Citations and references

Rules:

• 34 Tex. Admin. Code Rule 3.295 (natural gas and electricity; predominant use for mixed-use complexes)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9701190L

Original ruling text

January 30, 1997

Dear ***:

Thank you for your letters of January 13, 1997, asking about the taxation of
electricity bought from the CITY A for use in equipment in common areas
(sprinkler systems, swimming pools, club houses, and exterior lighting) in
residential condominium complexes.

A residential condominium complex is a complex in which the units are owner
occupied and all rental units are rented for period greater than 30 days. The
use of electricity in the common areas of residential condominium complexes is
exempt residential use. A mixed-use condominium complex contains units that
are rented to tenants for periods less than 29 days. Mixed-use condominium
complexes must qualify for exemption based on predominant use as outlined in
Rule 3.295.

The electricity paid for by the following council of co-owners or homeowners
associations, an association of individual owners is exempt if the condominium
complexes are residential complexes:

*** Council of Co-Owners, Inc.
**Condominium Owners Association
* Condo Owner Homeowners Association, Inc.
*Condo Owners Association
*Homeowners Association, Inc.
****Association, Inc.

*** Homeowners Association, Inc.
** Owners Association, Inc.
* Owners Association, Inc.
* Homeowners Association, Inc.
Condominium Owners Association for *, Inc.
* Association, Inc.
* Condominium Homeowners Association, Inc.
**** Homeowners Association, Inc.

*** Condominium Council of Co-Owners
** Homeowners Association
* Owners Association, Inc.
**** Homeowners Association, Inc.

The electricity purchased for use by the following associations for operating
common areas in residential subdivision is exempt:

*** Property Owners Association
** Property Owners Association
**** Community Association, Inc.

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 1-800-531-5441, extension 3-4683. The direct line is
512/463-4683. You may also write to Tax Policy Division, Comptroller of Public
Accounts.

Sincerely,
Eddie C. Washington
Tax Policy Division