Is Your Association Missing Out on a Utilities Sales Tax Exemption?
Some associations are unaware that they could be entitled to an exemption for the sales tax related to a major expense – utilities for common areas serving exclusively residential properties, including condominiums and homes in a homeowners’ association. However, nonresidential uses are not exempt.
Section 212.08(7)(j), Fla. Stat. provides an exemption for the sale of utilities used for residential purposes by “residential households.” Essentially, the statute has two requirements: (1) the sale must be to a residential household, and (2) the use must be exclusively for residential purposes.
“Residential household use” does not require the electricity to be used solely inside a residence. Electricity used for residential purposes within the common areas may also qualify as exempt, even though the common areas are not directly contiguous with the residential household. The common area is considered to be of residential use, and therefore covered by the exemption, if the use is in conjunction with the operation of the residential households or fills the needs of residents; is not held out for the use by the public; and no charge is made for the use of the area. For example, a clubhouse exclusively serving residential homes may qualify.
While the common areas of a condominium association may be used for various purposes, some of which may not be exclusively residential, consumption for limited typically non-residential use may still be considered exempt if it is exclusively used for residential purposes in that community and not intended for the public. For example, a soda or snack machine may be considered residential if only used by and accessible to the owners in a condominium. Any nonexempt use of the electricity disqualifies the whole amount from the exemption. A nonexempt purpose, in the case of a residential condominium, would be the consumption of electricity used by the association and/or management to conduct commercial activities, consumption by a nonresidential unit, or the shared consumption of electricity on one meter for common areas serving both commercial condominiums and residential condominiums.
Where there is more than one meter that serves the residential area, the use related to each meter should be analyzed. To the extent that each area is (1) separately metered and (2) used exclusively for residential purposes, the exemption may apply. Thus, associations with both residential and commercial components should consider whether they can separately register and meter so that the exemption can be claimed for meters serving exclusively residential uses.
Moreover, the burden is on the account owner to establish the exemption. For example, properties may be initially coded as commercial during the developer sales period, and until proper documentation is submitted to claim a residential exemption, the utility provider will continue charging and remitting the sales tax. Utility providers can discontinue collecting and remitting sales tax once an account holder has established exempt status in accordance with applicable regulations. Associations should therefore establish whether it is entitled to the exemption, and take appropriate steps to claim it. A refund can be sought for previous years to the extent permissible by applicable law.
*Please note that the attorneys at Haber Law, P.A. are not tax attorneys. The information contained herein is for general informational purposes, does not constitute tax or legal advice. The issues discussed should not be addressed without help from your association accountant. To learn more about our experienced condominium attorneys and Association Law practice, call or email us.