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RULE §3.356Real Property Service

    (C) the performance of the unrelated service is distinct and identifiable. Examples of an unrelated service which may be excluded from the tax base include maintenance charges meeting the definition in §3.357 of this title (relating to Labor Relating to Nonresidential Real Property Repair, Remodeling Restoration, Maintenance, New Construction, and Residential Property), engineering studies, and architectural or landscaping designs.

  (2) When nontaxable unrelated services and taxable services are sold or purchased for a single charge and the portion relating to taxable services represents more than 5.0% of the total charge, the total charge is presumed to be taxable. The presumption may be overcome by the service provider at the time the transaction occurs by separately stating to the customer a reasonable charge for the taxable services. However, if the charge for the taxable portion of the services is not separately stated at the time of the transaction, the service provider or the purchaser may later establish for the comptroller, through documentary evidence, the percentage of the total charge that relates to nontaxable unrelated services. A customer may presume that a separately stated charge from a service provider for taxable services is reasonable, in the context of this section. The service provider's books must support the apportionment between exempt and nonexempt activities based on the cost of providing the service or on a comparison to the normal charge for each service if provided alone. If the charge for exempt services is unreasonable when the overall transaction is reviewed, considering the cost of providing the service or a comparable charge made in the industry for each service, the comptroller will adjust the charges and assess the service provider the additional tax, penalty, and interest on the taxable services.

  (3) Charges for services or expenses directly related to or incurred while providing the taxable service are taxable and may not be separated for the purpose of excluding these charges from the tax base. Examples include charges for meals, telephone calls, hotel rooms, or airplane tickets.

(j) Governmental entities. When garbage collection services are provided by a governmental entity without a specific charge being assessed, such as when this service is provided as a basic part of services funded by a tax or a set fee structure of the governmental entity, sales or use taxes are not due. This section does not apply if the fee changes each billing period based on quantity of consumption of tangible personal property or service provided individual service recipients.

(k) Local taxes. With the exception of garbage or other solid waste removal services, local sales and use taxes apply to services in the same way as they apply to tangible personal property. Generally, service providers must collect local sales taxes if their place of business is within a local taxing jurisdiction, even if the service is actually provided at a location outside that jurisdiction. However, transit sales taxes do not apply to services provided outside the boundaries of the transit area. If the service provider's place of business is outside a local taxing jurisdiction but the service is provided to a customer within a local taxing jurisdiction, local use taxes apply and the service provider is required to collect them. Local taxes for garbage or other solid waste removal services are allocated to the local taxing jurisdiction in which the garbage or other solid waste is located when its collection or removal begins.

(l) For general information on the collection and reporting responsibilities of providers and purchasers of taxable services, see §§3.286, 3.374, 3.375, 3.424, and 3.425 of this title (relating to Seller's and Purchaser's Responsibilities; Imposition of the Sales Tax; Collection by Retailer; Bracket System Formula; Determining City Tax, Administration of Use Tax; Collection by Retailer, Imposition of Sales Tax, and Administration of Use Tax; Imposition and Collection).

(m) Use tax. If a seller of a taxable service is not doing business in Texas or a specific local taxing jurisdiction and is not required to, or does not voluntarily, collect and report the applicable Texas tax, it is the Texas customer's responsibility to report and pay the use tax directly to this office.

(n) Property management companies.

  (1) Employees permanently assigned to one rental property are considered employees of that property when the property manager is reimbursed by the property owner on a dollar-for-dollar basis. On managed rental properties, the employees remain assigned to the property while employed by successive owners or management companies. The reimbursement charge for taxable services performed on a managed rental property by management company employees assigned to it will not be taxable. However, if these same employees provide real property services for other properties, the property manager must collect tax on the total charge for those services. The management company owes tax on the purchase price of all taxable items purchased and provided to the employees providing services on managed rental property.

  (2) Property management companies whose employees provide taxable services as part of their overall management and operation of a rental property need not collect tax on those services if their value is insignificant.

    (A) Such taxable services will be considered insignificant in any billing period in which their value is 5.0% or less of the amount charged by the management company for services. The amount charged by the management company for taxable services is to be determined by deducting from the management company's total charge any mortgage payments made by the management company for the property owner and any amounts paid to persons other than employees of the management company for goods and services.

    (B) If the value of the taxable services exceeds the 5.0% limit, the entire amount charged by the management company will be considered taxable unless charges for taxable services are separately itemized and taxed as provided under subsection (i)(2) of this section.

  (3) Purchases by the property management company for use by the property owner of taxable goods, labor, or services from third-party suppliers may be handled in either of the following ways:

    (A) the management company may issue a resale certificate to the supplier and collect tax from the property owner on the itemized charge for the goods, labor, or service; or

    (B) the management company may pay tax to the supplier and collect from the property owner an amount equal to the total of the amount paid by the management company for the goods, labor, or services and the tax paid.

Source Note: The provisions of this §3.356 adopted to be effective April 1, 1988, 13 TexReg 1343; amended to be effective April 24, 1989, 14 TexReg 1790; amended to be effective December 6, 1991, 16 TexReg 6760; amended to be effective March 23, 1995, 20 TexReg 1749.

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