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  1. #1
    Join Date
    May 2008
    Posts
    2

    Default Sales Tax On Property Owners Association

    In the state of Texas do Property Owners Association's incorporated under Section 528 of the Internal Revenue Code as a non-profit corporation have to pay sales tax on purchases?

    Thank you

  2. #2
    Join Date
    Sep 2005
    Location
    Behind a Desk
    Posts
    98,846

    Default Re: Sales Tax On Property Owners Association

    Why wouldn't it? It has a limited exemption from federal income taxes, sure, but it's not a charitable organization. ("IRC 528 reflects Congress' view that it is not appropriate to tax the revenues of an association of homeowners who act together if an individual homeowner acting alone would not be taxed on the same activity.") If you want more than that, look into becoming a 501(C)(4) organization.

    If you want to know the official position of the State of Texas, contact them and ask.

  3. #3
    Join Date
    Nov 2007
    Posts
    28

    Default Re: Sales Tax On Property Owners Association

    I'm with Mr. K. The homeowners association, or condominium association, may be a "not-for-profit" corporation, but that does not make them a charitable organization. In the several states I am familiar with the states do provide that said organizations are NOT exempt from sales tax. There is a Revenue Ruling from the late 70s or early 80s that tells us that the dues paid to these organizations are NOT deductible (they are not taxes).
    As stated above the dues are basically contributions to capital and are not taxable to the organization. Income generated from the organizations use of the money collected is taxed at 30%, such as interest on a savings account, or rents from the use of the common grounds (less expenses). The 30% may have been the average tax rate for homeowners back in 1978 when the section 528 was enacted, but it should be updated to reflect todays tax rates and the demographics.
    The worst case of double taxation for these organizations and their owners is the real estate taxes on the home, which includes the value of the association property, and then a taxation of the association property as well. The same value is being taxed twice. To add insult to injury the deed restrictions or covenants prohibit the association from selling any of the common grounds (a common factor in several states). If the property cannot be sold then its value "in terms of cash" (fair market value) is zero. This does not stop the states from taxing the organization's real property.

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