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Ruling 92-8

Sales and Use Taxes Services to Real Property


A property management company (hereinafter "M Company") has been retained by the owner of a vacant office complex to oversee the redevelopment of the property (the owner's former business headquarters) into a fully occupied, multi-tenant complex. M Company's services to the owner will include: developing a conceptual master plan for the redevelopment of the complex; retaining an architect to design any necessary changes; hiring a contractor on behalf of the owner to construct the necessary changes; overseeing and managing the marketing of the property; supervising and coordinating tenant improvement work; and obtaining all necessary zoning, wetlands and building permits.

When the complex becomes fully occupied with new tenants, M Company's services under its redevelopment contract with the owner will be complete. M Company has also entered into a contract with the owner for the day-to-day management of the property, which it acknowledges to be a taxable service.


Whether M Company's overall management of the redevelopment of the owner's vacant commercial property into a fully occupied multi-tenant complex involves services subject to sales and use taxes.


The Sales and Use Taxes Act, Conn. Gen. Stat. §12-406 et seq., imposes sales and use taxes, inter alia, on certain enumerated services. Conn. Gen. Stat. §12-407 provides in pertinent part that

"Sale" and "selling" mean and include: . . . (i) the rendering of certain services for a consideration, exclusive of such services rendered by an employee for his employer, as follows: . . . (I) services to industrial, commercial or income-producing real property, including but not limited to, such services as management . . . (J) business analysis, management, consulting and public relations services . . .

There are, potentially, two taxable categories into which M Company's services involving "management" could be placed. Conn. Gen. Stat. §12-407(2)(i)(J), cited above, taxes business management services, when provided with respect to the "core business activities" of the service recipient. Conn. Agencies Regs. §12-407(2)(i)(J)-1(e). "Core business activities" include "activities directly related to a service recipient's lines of business involving sales of products, property, goods or services to others," but do not include "the management of the service recipient's real property . . ." Conn. Agencies Regs. §12-407(2)(i)(J)-1(h).

The other service category involving taxable management services is Conn. Gen. Stat. §12-407(2)(i)(I), cited above, involving services to industrial, commercial or income-producing real property. Conn. Agencies Regs. §12-407(2)(i)(I)-1(c)(1) specifies that such services will be within the purview of the statute "if and only if the services are rendered to existing . . . real property" as opposed to the construction of new real property, i.e., new buildings or additions.

Under the facts presented herein, it is clear that M Company will be rendering services to existing commercial or income-producing real property as those terms are defined in Conn. Agencies Regs. §12-407(2)(i)(I)-1(e) and (f). The building complex in question had a commercial purpose for the owner, and is being converted into income-producing commercial property for the owner. The only remaining area of consideration is whether the services of M Company constitute "management" as that term is used in the statute.

It is well settled and conceded by M Company that the day-to-day management of real property is a service subject to tax under Conn. Gen. Stat. §12-407-(2)(i)(I). Day-to-day management services involve the supervision of a wide variety of ongoing maintenance and upkeep activities, as well as matters relating to the marketing and tenancy of the property. The Department also includes within the category of services to real property the activities of "construction consultants" and "construction managers," who are responsible for cost analysis; budgeting; reviewing preliminary plans; construction inspection, supervision and approval; planning; and code compliance, among other things.

The services of M Company will include developing plans, hiring and approving contractors on behalf of the owner, and responsibility for zoning and code compliance, activities essentially the same as those of construction consultants and construction managers. M Company's services will also include marketing the property to obtain tenants and working with them on the types of improvements they wish to have made to the property ("tenant improvement work"), activities similar to those of day-to-day property managers. There appears to be no rational basis on which to distinguish between services involving tenants before the building becomes fully occupied and services involving the tenants after the building becomes fully occupied. M Company acknowledges that its day-to-day property management services will be taxable.


Services involving the overall management of the redevelopment of an owner's vacant commercial property into a fully occupied multi-tenant complex are taxable under Conn. Gen. Stat. §12-407(2)(i)(I) as management of industrial, commercial or income-producing real property.


April 20, 1992