Can an interior design and space-planning service qualify for the capital-improvement exclusion from New York sales tax?

Plain-English summary

Hafner Associates, Inc., a Rochester interior-design and space-planning firm, provides services including evaluating and laying out a home or office, lighting design, elevations of millwork and built-in cabinetry, finishes and furnishings specifications, finish schedules, and site visits/project management — all presented on blueprints. Its services are taxable under Tax Law § 1105(c)(7). Hafner asked whether the sale of an interior design service could qualify as a capital improvement to real property (and thus be excluded from tax).

The Department said no:

• Design services are taxable interior-decorating services. Section 1105(c)(7) taxes interior decorating and designing services, by whomever performed, including decorators, designers, architects, or engineers (with a narrow exception for licensed architects/engineers practicing architecture/engineering).
• The capital-improvement exclusion doesn't fit. The capital-improvement exclusion in § 1105(c)(3)(iii) applies to installing tangible personal property that becomes a capital improvement. But design services are not tangible personal property, and they are not "installed."
• No exclusion in § 1105(c)(7). Section 1105(c)(7) itself contains no capital-improvement exclusion. So the design services are taxable even though the resulting installation may be a capital improvement.

What this means for you

Design is taxed as a service, separate from the construction it informs

New York taxes interior decorating and designing services under § 1105(c)(7) as their own category. The tax status of the design work is decided on its own terms — it doesn't inherit the tax treatment of the physical construction or installation that follows.

The capital-improvement exclusion is for installed property, not professional services

The capital-improvement exclusion turns off tax on installing tangible personal property that becomes a permanent part of real property. A plan, drawing, or design specification isn't tangible personal property being installed, so that exclusion can't reach a design fee — even when the finished, built-out result clearly is a capital improvement.

Licensed architects/engineers are the narrow exception

Section 1105(c)(7) doesn't tax services that consist of the practice of architecture or engineering when performed by a licensed architect or engineer. A design/decorating firm that isn't providing licensed architectural/engineering practice doesn't fall within that carve-out.

Common questions

Q: Are interior design services taxable in New York?
A: Yes. Interior decorating and designing services are taxable under § 1105(c)(7), by whomever performed.

Q: If my design leads to a capital improvement, is the design fee tax-free?
A: No. The capital-improvement exclusion applies to installing tangible personal property, not to design services, and § 1105(c)(7) has no capital-improvement exclusion.

Q: Why doesn't the design qualify as a capital improvement?
A: Because design services are neither tangible personal property nor "installed" — the capital-improvement exclusion in § 1105(c)(3)(iii) doesn't apply to them.

Q: Is there any exception under § 1105(c)(7)?
A: Only for services that consist of the practice of architecture or engineering when performed by a licensed architect or engineer.

Citations and references

Statutes, regulations, and authorities:

• Tax Law § 1105(c)(7) (tax on interior decorating and designing services, by whomever performed; exception for the licensed practice of architecture/engineering)
• Tax Law § 1105(c)(3)(iii) (capital-improvement exception for installing tangible personal property that becomes a capital improvement)
• Tax Law § 1101(b)(9) (definition of capital improvement)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1991.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a91_76s.pdf

Original ruling text

New York State Department of Taxation and Finance
TSB-A-91(76) S
Sales Tax
December 19, 1991

Taxpayer Services Division
Technical Services Bureau
STATE OF NEW YORK

COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S910805A

On August 5, 1991 a Petition for Advisory Opinion was received from Hafner Associates,
Inc., 9 South Goodman Street, Rochester, New York 14607.
The issue raised by Petitioner, Hafner Associates, Inc., is whether its sale of an interior design
service may qualify as a capital improvement to real property.
Petitioner is an interior design and space planning firm whose services are subject to tax
under Section 1105(c)(7) of the Tax Law. Petitioner's services include the evaluation and layout of
a home or office, lighting design, elevations of millwork and built-in cabinetry, finishes and
furnishings specifications, finish schedules and site visits/project management. The layout, lighting
design, elevations etc. are presented on blueprints.
Section 1105(c)(3) imposes a tax upon:
Installing tangible personal property, excluding a mobile home, or
maintaining, servicing or repairing tangible personal property, including a mobile
home, not held for sale in the regular course of business, whether or not the services
are performed directly or by means of coin-operated equipment or by any other
means, and whether or not any tangible personal property is transferred in
conjunction therewith, except:
*

*

*

(iii) for installing property which, when installed, will constitute an addition
or capital improvement to real property, property or land, as the terms real property,
property or land are defined in the real property tax law as such term capital
improvement is defined in paragraph nine of subdivision (b) of section eleven
hundred one of this chapter, and. . . (Emphasis supplied)
Section 1150(c)(7) of the Tax Law imposes sales tax upon:
Interior decorating and designing services, (whether or not in conjunction with the
sale of tangible personal property), by whomsoever performed, including interior
decorators and designers, architects or engineers; notwithstanding the foregoing, such
services shall not include services which consist of the practice of architecture, as

-2­
TSB-A-91(76) S
Sales Tax
December 19, 1991

defined in section seventy-three hundred one of the education law, or the practice of
engineering, as defined in section seventy-two hundred one of the education law, if the
services are performed by an architect or engineer having a license or permit under the
education law.
In order to meet the requirements for exclusion from sales tax as a capital improvement,
tangible personal property must be installed as an addition or capital improvement to real property
in accordance with the meaning and intent of Section 1105(c)(3)(iii) of the Tax Law. Design services
are not tangible personal property nor are they installed. In addition, Section 1105(c)(7) of the Tax
Law contains no exclusion pertaining to capital improvements. Thus, Petitioner's design services are
properly subject to sales tax even though the resulting installation may constitute a capital
improvement.

DATED: December 19, 1991

s/PAUL B. COBURN
Deputy Director
Taxpayer Services Division

NOTE: The opinions expressed in Advisory Opinions
are limited to the facts set forth therein.