Another Taxing Question for Mister Condo

A.C. from Fairfield County writes:

Dear Mister Condo,

Are management companies allowed to charge a sales tax on the monthly management fee? For example, we agreed on a $25/unit, but are being charge $25+tax/unit.

Mister Condo replies:

A.C., this is the second property management fee tax question I’ve had this week! The answer is it depends on who occupies the unit. Condo units that are rented out are considered commercial property and, as such, management services offered to those units are taxable. Condo units that are owner-occupied are not considered commercial property so the management fee is not taxable in the eyes of the state at this time. However, if a management company is collecting the tax and forwarding that tax to the state, it is unlikely that the state would correct them. It would be incumbent upon the management company to keep track of which units are rentals and charge the association the correct fee and tax based on the number of rentals. It is a tricky proposition. You can read more about it at the Connecticut Department of Revenue Services website by downloading their pamphlet at http://www.ct.gov/drs/lib/drs/publications/pubsip/2006/ip06-35.pdf. In particular, read Page 20 of this book and you’ll see a very clear explanation. All the best!