I'm a carpet company recarpeting an apartment complex, and the job includes the manager's office and lobby along with the apartments themselves -- is the labor to recarpet the office/lobby taxable, or does it count as part of the tax-exempt residential job?

Subject

Apartment Complex/Condominiums — Manager'S Office And Lobby — Calculation To Determine If Residential Or Commercial

Plain-English summary

A Texas carpet company that mostly recarpets family/multi-family dwellings (like apartment complexes) asked the Comptroller how to handle the labor charge for recarpeting the leasing office and lobby space that's part of the same job as the apartment units. The company had heard informally (by phone) that because the office space was such a small percentage of the total square footage, it could just be treated the same as the residential apartment space for tax purposes.

The Comptroller's answer turns on two things: how the job is billed and, if it's billed as one combined charge, what percentage of the total job the office/lobby represents.

• If the labor to recarpet the office/lobby is separately stated from the labor to recarpet the apartments, that office/lobby labor is taxable, no matter how small the office is relative to the whole job.
• If the labor charge is lumped together into one combined price covering both the apartments and the office/lobby, then the office/lobby labor is taxable if the office/lobby's square footage is more than 5% of the total recarpeted square footage for the job, and not taxable if it's 5% or less.

So the "small percentage doesn't matter" advice the company had received over the phone wasn't quite right -- size only helps if the charge is combined, and even then only up to the 5% threshold; separately stating the office charge makes it taxable regardless of size.

What this means for you

Carpet/flooring contractors billing combined apartment-complex jobs

If you bill one lump-sum labor charge that covers both the residential units and a manager's office or lobby, figure out the office/lobby's square footage as a percentage of the total recarpeted square footage. If it's 5% or less, the whole labor charge can be treated as nontaxable residential labor. If it's more than 5%, the office/lobby portion of that labor is taxable.

Carpet/flooring contractors who itemize by area

If you separately state the labor charge for the office/lobby from the labor charge for the apartments on your invoice or contract, the office/lobby labor is taxable regardless of its size relative to the job -- itemizing removes the benefit of the 5% threshold.

Property managers/owners contracting for recarpeting work

Expect your contractor to either separately charge tax on office/lobby labor, or, if billed as one combined price, to charge tax only if the office/lobby space exceeds 5% of the total recarpeted area.

Common questions

Q: Is the labor to recarpet an apartment complex's manager's office and lobby taxable?
A: It depends on billing. If separately stated from the apartment labor, yes, it's taxable regardless of size. If combined into one labor charge with the apartments, it's taxable only if the office/lobby is more than 5% of the total recarpeted square footage.

Q: Does it matter that the office is a small percentage of the whole job?
A: Only if the labor charge is one combined price. In that case, 5% or less of the total job square footage means the office labor is not taxable. If the office is billed separately, its size doesn't matter -- it's taxable either way.

Q: What's the cutoff percentage?
A: 5% of the total recarpeted square footage for the job. More than 5% is taxable (when combined billing); 5% or less is not taxable.

Q: Does this ruling depend on anything besides contract language and square footage?
A: The letter says taxability "will depend on the contract language and the size of the office as a percentage of the total recarpeting job," and notes the opinion is based on the facts presented -- additional or different facts could change the result.

Citations and references

Statutes and rules: None cited in the original ruling text.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9701249L

Original ruling text

January 6, 1997

Dear **:

Thank you for your recent letter which is restated in part with response below.

We are a carpet company in CITY A, TX and most of our business is
family/multi-family dwellings such as apartment complexes. There is some
confusion on whether to tax the labor of apartment complex offices. We had been
told over the phone that since the offices of the apartment complexes were such
a small percentage of that total footage that it could be considered the same
as an apartment for family dwelling.

Response: The taxability of the labor will depend on the contract language and
the size of the office as a percentage of the total recarpeting job.

The labor to recarpet the office will be taxable regardless of the size of the
office as a percentage of the overall job, if the charge is separately stated
from the charge for recarpeting the apartments themselves.

Assuming the charge for labor to recarpet the office is lumped in with the
charge for labor to recarpet the apartments, the labor to recarpet the office
will be taxable if the size of the recarpeted office as a percentage of the
overall job is more than 5%. The labor to recarpet the office will not be
taxable if the size of the recarpeted office as a percentage of the overall job
is 5% or less.

This opinion is rendered based on the facts presented. If there are additional
or different facts, the opinion may change.

You may call me toll free at 1-800-531-5441, ext. 3-4680. The direct line is
512/463-4680. You may also write to Tax Policy, Comptroller of Public Accounts.
My Internet address is .

Sincerely,

Al Van Allen
Tax Policy Division