Is a flat monthly fee for an assigned parking space behind my office building a taxable parking service or a nontaxable real property rental in Texas?

Plain-English summary

A business paid a flat monthly fee for one assigned parking lot space behind its building, on land that appeared to be part of the larger property, with no other services included, and asked the Comptroller whether that fee was a taxable parking service or a nontaxable real property rental.

The Comptroller ruled it's a taxable motor vehicle parking service. Under Rule 3.315(b), a contract for the lease or rental of real property can still include motor vehicle parking or storage as part of the deal, and sales tax is due on whatever portion of the charge can be attributed to the parking or storage — whether that's spelled out in the agreement itself or determined by some other reasonable method.

The letter draws a contrast with two prior Comptroller hearings the taxpayer had cited:

• In one hearing, a taxpayer leased an entire empty lot for a five-year term and made substantial improvements — a security fence, a keypad-controlled cantilever gate, removed an existing shed, painted parking stripes, and contracted for ongoing cleaning/repairs. That was held to be a real property lease, not a taxable parking service.
• In a different hearing, a taxpayer rented 30 parking spaces in an existing lot (much closer to this taxpayer's situation of one assigned space in an existing lot) — that was held to be a taxable parking service.

Since this taxpayer was simply renting an assigned space in an existing lot with no improvements or additional services, it falls on the taxable-parking-service side of the line.

What this means for you

Businesses renting parking spaces

Paying a flat fee for a specific parking space (or spaces) within an existing lot -- without taking on responsibility for improving, securing, or maintaining the lot yourself -- is a taxable parking service, not a real property lease, even if it's billed as a monthly "rental."

Property owners/landlords who lease out whole lots

If you lease out an entire, previously-empty lot and the tenant takes on real improvements (fencing, gates, striping, repairs) and effectively controls the space as real property, that arrangement can be treated as a nontaxable real property lease instead of a taxable parking service -- the degree of tenant control and improvement matters.

Common questions

Q: Is any monthly parking fee automatically a real property lease?
A: No, per this letter -- renting a specific space (or spaces) in an existing lot without taking on real property responsibilities is a taxable parking service under Rule 3.315(b).

Q: What would make a parking arrangement a nontaxable real property lease instead?
A: Per this letter, factors like leasing an entire (often empty) lot for a substantial term and making real improvements (fencing, gates, striping) and handling maintenance point toward a real property lease rather than a taxable service.

Q: Where can I see the hearings this letter compares to?
A: The letter references two Comptroller hearing decisions (fiche 9406475H and 9408554H) as available in edited format on the Comptroller's website at the time.

Citations and references

Statutes and rules:

• 34 Tex. Admin. Code Rule 3.315(b) (Motor Vehicle Parking and Storage — tax due on parking/storage charge within a real property lease)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9806544L

Original ruling text

June 8, 1998

Dear Mr. **:

This is in response to your request for a ruling regarding parking services.

Your firm pays a flat fee of $** per month for rental of an
assigned parking lot space behind your building, on land which appears to be a
part of the entire property. No other services are associated with this rental.

You asked if this $** constitute a taxable (parking) service, or a
real property rental?

Response: We would view it as the purchase of a taxable parking service for a
$** monthly consideration. Subsection (b) of Rule 3.315 - Motor
Vehicle Parking and Storage, provides that:

A contract for the lease or rental of real property may include motor vehicle
parking and storage as part of the agreement. Sales tax is due on the motor
vehicle parking or storage charge if an amount can be attributed to the parking
or storage, either through the agreement itself or some other method.

Your situation is distinguishable from the one fiche (9406H1308D14 or 9406475H)
that you provided that was held to be a lease of real property rather than a
taxable parking service. In that hearing the petitioner leased an empty lot
for a five year term and made the following improvements on the lot in
question: (1) erected a security fence around the lot, (2) installed a
keypad-controlled 12' cantilever gate, (3) removed a shed that was sitting on
the lot, and (4) painted vehicle parking stripes on the lot. Petitioner
contracted with various vendors to have the lot cleaned and to perform repairs
on an as-needed basis.

Fiche (9408H1312E13 or 9408554H) is more in line with your situation, where the
petitioner rented 30 parking spaces in an existing parking lot. This lease was
held to be a taxable parking service. Fiche 8704L0808B06 is shown to be
superseded. Both fiche 9406475H and 9408554H are now available in an edited
format for viewing at our website:
http://cpastar2.cpa.state.tx.us/index.html

If you still cannot access them, please advise and I will be glad to fax them
to you.

This opinion is based on the facts presented. Other facts though similar may
provide a different result. I hope this information answers your questions.
If you need additional information, please call me toll free at 1-800-531-5441,
extension 3-4502. The direct line is 512/463-4502. You may also write to Tax
Policy Division, Comptroller of Public Accounts. You may also e-mail our tax
help section at:

Sincerely,

Gilbert Zamora
Tax Policy Division