Ruling 2017-3 - Sales and Use Taxes - Services to Real Property and Cooperatives
A property management company (the “Company”) provides property management services to residential properties, including cooperative communities.
Are the Company’s sales of property management services to cooperative communities taxable as services to commercial, industrial or income-producing real property under Conn. Gen. Stat. § 12-407(a)(37)(I)?
Cooperative communities are income-producing real property, and so the Company’s sales of property management services to a cooperative community are taxable under Conn. Gen. Stat. § 12-407(a)(37)(I).
Sales and use taxes are imposed on the sale of a service only if the service is specifically enumerated as taxable. Conn. Gen. Stat. § 12-407(a)(2). Services to industrial, commercial or income-producing real property are specifically enumerated as subject to sales and use taxes under Conn. Gen. Stat. § 12-407(a)(37)(I). These services include property management services. Thus, sales of the Company’s property management services will be subject to sales and use taxes if the cooperative is considered to be industrial, commercial, or income-producing real property. Based upon the facts provided by the Company, the cooperative is entirely residential in nature. The real property may, however, still be considered income-producing.
“Income-producing real property” means real property held for or used in the production of income. Conn. Agencies Regs. § 12-407(2)(i)(I)-1(f). In a cooperative community, the cooperative owns the real property. See Conn. Gen. Stat. § 47-202(12). The cooperative members (i.e., the residents) do not own the real property, but instead own interests in the cooperative. See Id. Each member, by virtue of his or her ownership interest in the cooperative, is entitled to occupy a unit. See Id. Also by virtue of his or her ownership interest in the cooperative, each member is obligated to pay the cooperative a share of the cooperative community’s expenses. See Conn. Gen. Stat. § 47-202(9). These payments are treated as income of the cooperative, regardless of whether a cooperative endeavors to make a profit or is subject to tax on such income. See I.R.C. § 216(b)(1)(D)(i) and Treas. Reg. § 1.216-1(e)(4).
Therefore, because a cooperative community produces income, the Company’s sale of property management services to a cooperative community is taxable under Conn. Gen. Stat. § 12-407(a)(37)(I), regardless of the otherwise residential nature of the cooperative community.
August 2, 2017
 None of the cooperative communities managed by the Company are housing facilities for low and moderate income families, which are specifically excluded from the definition of income-producing property and are also the subject of a specific exemption set forth in Conn. Gen. Stat. § 12-412(29).
 The Company represents that it does not perform any maintenance or janitorial services for the cooperative communities, as the sales of such services would be subject to sales and use taxes for all properties. Conn. Gen. Stat. § 12-407(a)(37)(X) and (Y).
 Property management services include overseeing the day-to-day operations of real property, providing services such as assisting with budgeting, inspecting the property for maintenance issues or rule infractions, administering service requests by residents, handling purchase orders and contracts for services on behalf of the client, and keeping track of other administrative functions for the client. See Informational Publication 2006(35), Building Contractors’ Guide to Sales and Use Taxes, “Management,” p. 44.
 Conn. Agencies Regs. § 12-407(2)(i)(I)-1(f)(2) provides two exclusions from the definition of “income-producing real property,” neither of which apply to the facts presented.
 This ownership structure is different from the ownership structure of a condominium association. In a condominium association, the units are individually owned by the residents and the common area is jointly owned. See Conn. Gen. Stat. § 47-200(10). Specific rules regarding the extent to which a condominium association is treated as income-producing real property are provided in Conn. Agencies Regs. § 12-407(2)(i)(I)-1(f)(4).