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Texas Urges Common Sense For Common Areas

The Texas Comptroller has released a memo urging 'common' sense with respect to the taxation of common areas. In it, common areas owned by homeowners' associations are dissected for sales tax purposes. Taxability often depends on the nature of a property--if it is residential or nonresidential.

"'Common Sense' and Homeowners' Association Golf Courses" outlines the following:

Residential Property

  • Residential common areas are "for the SOLE use of the residents." They "do not include any commercial area open to nonresidents… ." (Rule 3.357(a)(13)).
  • Labor and materials used to repair, remodel or restore residential property is "not taxable."
  • Electricity used in residential common areas of homeowners' associations is not subject to state tax.

Nonresidential Property

  • Residential property that is open to use by nonresidents is considered nonresidential.
  • "Labor and materials used to repair, remodel or restore nonresidential real property is taxable."
  • "[C]ommercial uses of electricity are subject to both state and local tax."

A golf course is not for the "sole use" of residents if any of the following conditions are true:

  • "persons from other golf clubs may play under reciprocal agreements;
  • nonresidents can play in hosted tournaments;
  • nationally known celebrities, sports writers, sporting goods salesmen or visiting professionals are invited to play for course promotional purposes or
  • the course is available for golf school programs."

Generally speaking, a golf course owned by a homeowners' association or located within the confines of the homeowners' association territory is "NOT a part of the residential common area of the homeowners' association for the sales tax purposes."

However, the memo points out that when common areas include both residential and nonresidential property, taxes may be "prorated based on the ratio of residential to nonresidential use… ."

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Sales tax rates, rules, and regulations change frequently. Although we hope you'll find this information helpful, this blog is for informational purposes only and does not provide legal or tax advice.
Gail Cole
Avalara Author
Gail Cole
Gail Cole
Avalara Author Gail Cole
Gail began researching and writing about sales tax in 2012 and has been fascinated with it ever since. She has a penchant for uncovering unusual tax facts, and endeavors to make complex sales tax laws more digestible for both experts and laypeople.