“Common” Sense and Homeowners’ Association Golf Courses

Many homeowners’ associations have golf courses within them. Even though a homeowners’ association may own a golf course, the golf course is almost always commercial in nature and treated as such for sales tax purposes.

Tax law recognizes that certain areas in neighborhoods wholly owned by homeowners’ associations are for the common use of the residents and are therefore residential in nature. That is, a person may not have a private front yard in a homeowners’ association, but a local park that is solely for the use of the residents of the homeowners’ association is treated as the “yard” of all residents in the neighborhood. So, the term “residential property” includes homeowners’ association-owned and apartment-owned swimming pools, laundry rooms and other common areas for tenants’ use. See Rule 3.357(a)(13).

Nevertheless, the fact that certain grounds and structures are merely owned by a homeowners’ association and may be used by residents is not necessarily an indication that the property is a residential common area.

The nature of property—residential versus nonresidential—is a critical distinction in terms of the treatment of real property repair, remodeling and restoration services, as well as the taxability of electricity. The labor and materials used to repair, remodel or restore nonresidential real property is taxable, while the labor to perform the same activities on residential real property is not taxable. Similarly, the electricity used in residential common areas of homeowners’ associations is not subject to state tax, while commercial uses of electricity are subject to both state and local tax.

Again, to qualify as a residential common area, the area must be for the sole use of the residents. Rule 3.357(a)(13) notes that residential common areas do “not include any commercial area open to nonresidents, retail outlets, hospitals, hotels, or any other facilities that are subject to the hotel occupancy tax.” This means an amenity (such as a golf course) although owned by the membership of a homeowners’ association or within the confines of the homeowners’ association territory, is generally not a part of the residential common area of the homeowners’ association for the sales tax purposes.

Therefore, a golf course is not considered a residential common area of a homeowners’ association for the “sole use” of residents if any of the following or similar conditions exist:

  • 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.

Rule 3.357(a)(13) also states that “[c]ommon areas of mixed residential and nonresidential property are allocated or prorated based on the ratio of residential to nonresidential use of the property.” Therefore, if a golf course qualifies as a residential common area, but there is a retail outlet such as a pro shop or restaurant on site, then work to remodel, repair or restore the property should be prorated accordingly. The tax treatment of electricity will be based on the predominate use of the electricity used and measured though the meter(s) per Rule 3.295.

*Originally published in Tax Policy News; a monthly newsletter about Texas tax policy at http://window.state.tx.us/taxinfo/taxpnw/tpn2012/tpn1208.html