If an unlicensed design company and a separately owned, licensed architectural firm split up an office-design engagement under one contract, which of their combined services are subject to New York sales tax?

Plain-English summary

A design and architectural services firm was considering restructuring into two separately owned entities to handle the same office fit-out work it currently does as one business: an LLC (not itself a licensed architectural firm, though it would employ licensed architects) to handle space planning, layout, design development, working drawings, bid analysis, on-site coordination, and furniture/furnishings selection; and an LLP, licensed as an architectural firm, to review and seal drawings and perform legally required inspections. Both entities would work under the same contract for a given client engagement. The accountant asked which of these services would be subject to New York sales tax after the split.

New York taxes "interior decorating and design services" generally, but carves out an exception for services that constitute the actual practice of architecture or engineering under the Education Law, when performed by a licensed architect or engineer. The Department confirmed the exemption follows the nature of the service and its licensing chain, not which entity is billing for it: the LLC's space planning, layout, design development, and preparation of detailed working drawings stay untaxed, but only because those drawings are an integral part of the same engagement's drawings that the licensed LLP reviews and seals under the same contract. The LLP's plan review, sealing, and government filing, plus legally required inspections and sign-offs, are exempt architectural services in their own right. Separately, analyzing contractor/vendor bids and on-site monitoring/coordination of contractors were already untaxed under the prior single-entity structure too, simply because those activities were never on New York's list of enumerated taxable services to begin with -- the restructuring doesn't change that.

What this means for you

Architecture and design firms considering multi-entity restructuring

Splitting unlicensed design work from licensed architectural sign-off into separate legal entities doesn't automatically create or destroy tax exposure -- what matters is that the unlicensed entity's planning and drafting work be an integral part of drawings that a licensed architect or engineer actually reviews and seals as part of the same engagement (ideally under a single contract), consistent with how the exemption already worked when one entity did everything.

Businesses hiring both a design consultant and an architect for the same project

If your design consultant's drawings feed directly into drawings sealed by a licensed architect on the same job, that combined planning-and-drafting work is likely exempt from sales tax; if the design work stands alone without a licensed architect's review and seal, expect it to be taxable interior decorating and design.

Accountants and tax professionals

This opinion is a useful precedent for corporate restructurings generally: New York evaluates the substance of a licensed-professional exemption by tracing the work product (the drawings, reviewed and sealed under one engagement) rather than by which corporate entity technically performs each step, citing the same "integral part of the same contract" reasoning from Morton Coren (TSB-A-97(82)S) and Edward B. Rusin (TSB-A-85(6)).

Common questions

Q: Is interior design and space planning always exempt when a licensed architect is involved somewhere in the company?
A: No -- the unlicensed work must be an integral part of drawings that the same engagement's licensed architect or engineer actually reviews and seals, under the same contract, not just performed by a company that happens to also employ licensed architects.

Q: Are contractor-bid analysis and on-site construction coordination taxable?
A: No -- these aren't on New York's list of specifically enumerated taxable services at all, regardless of licensing or which entity performs them.

Q: Does splitting one company into an LLC and an LLP change the sales tax outcome?
A: Not by itself -- the same substantive test (is this really the practice of architecture/engineering, reviewed and sealed by a licensed professional as part of one engagement) applies whether one entity or two entities perform the work.

Citations and references

Statutes and regulations:

• Tax Law § 1105(c)(7) (interior decorating and design services; architecture/engineering carve-out)
• Education Law § 7301 (practice of architecture)
• Education Law § 8303, Article 161 (practice of interior design)
• TSB-M-95(13)S (repeal of New York City's tax on interior decorating and design services)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1999.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a99_9s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-99(9)S
Sales Tax
March 1, 1999

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S980922A

On September 22, 1998, the Department of Taxation and Finance received a Petition for
Advisory Opinion from Mitchell Eichen, Perelson Weiner, One Dag Hammarskjold Plaza, New
York, New York 10017. Petitioner, Mitchell Eichen, provided additional information pertaining to
the petition on November 12, 1998.
The issue raised by Petitioner is whether its client’s services are subject to sales and use tax.
Petitioner submits the following facts as the basis for this Advisory Opinion.
Petitioner’s client is in the business of performing design and architectural services.
Petitioner’s client performs space planning and consulting services consisting of:
1) Determination of space requirements.
2) Detailed office layouts and configurations.
3) Design development entailing three dimensional character detail of office space including
architectural materials, details and lighting.
4) Preparation of detailed working drawings and specifications setting forth the detail and
standard of construction.
5) Review, seal, and filing with government agencies of plans.
6) Analysis and advice regarding contractor/vendor bids.
7) On site monitoring and coordination of contractors and vendors.
8) Inspection and sign-offs, as required by local laws or ordinances, that the construction is
consistent with the architectural plans.
9) Selection and specification of personalty, furniture, furnishings and appointments.
(Furniture and furnishings are directly purchased by clients from third party dealers and
distributors.)
Petitioner’s client does not collect sales tax on any of the enumerated services except item

9. Petitioner does not raise an issue concerning the taxability of item 9.
   For business reasons, Petitioner’s client is considering restructuring its operations such that
   these services will be provided between two entities: an LLC which will provide the services
   described above as numbers 1-4, 6-7, and 9, and an LLP, licensed as an architectural firm, which will
   provide services 5 and 8. Petitioner’s client will sell its business to the LLC. The LLC will have
   licensed architects on its staff, although the LLC will not be licensed as an architectural firm.

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Sales Tax
March 1, 1999

Although there will be some common ownership between Petitioner’s client, the LLC, and the LLP,
the underlying owners and percentages of ownership will not be identical between any of such
entities.
All services to be provided by both the LLC and the LLP for a given engagement will be
provided as part of the same contract.
Applicable Law
Section 1105(c) of the Tax Law imposes a tax on the following:
The receipts from every sale, except for resale, of the following services:
*

*

*

(7) Interior decorating and design 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 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.
New York City’s tax on interior decorating and design services was repealed by Chapters 297
and 298 of the Laws of 1995, effective December 1, 1995. See Repeal of New York City’s Sales
Tax on Interior Decorating and Design Services, TSB-M-95(13)S, December 1,1995.
Section 7301 of the Education Law defines the practice of architecture as follows:
The practice of the profession of architecture is defined as rendering or
offering to render services which require the application of the art, science, and
aesthetics of design and construction of buildings, including their components and
appurtenances and the spaces around them wherein the safeguarding of life, health,
property, and public welfare is concerned. Such services include, but are not limited
to consultation, evaluation, planning, the provision of preliminary studies, designs,
construction documents, construction management, and the administration of
construction contracts.
Section 8303 of Article 161 of the Education Law defines the practice of interior design, in
part, as follows:

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TSB-A-99(9)S
Sales Tax
March 1, 1999

[T]he preparation and administration of interior design documents (including
drawings, schedules and specifications) which pertain to the planning and design of
interior spaces including furnishings, layouts, fixtures, cabinetry, lighting, finishes,
materials, and interior construction not materially related to or materially affecting
the building systems, all of which shall comply with applicable laws, codes,
regulations and standards. The scope of work described herein shall not be construed
as authorizing the planning and design of engineering and architectural interior
construction as related to the building systems, including structural, electrical,
plumbing, heating, ventilating, air conditioning or mechanical systems and shall not
be construed as authorizing the practice of engineering or architecture as described
in article one hundred forty-five of this title. The interior design plans as described
above are not to be construed as those required to be filed with local municipalities
or building departments as required by the state education law regulating the
practices of architecture or engineering.
Important Notice N-90-16 states in part that:
Interior decorating and design services include, but are not limited to: the
preparation of layout drawings; furniture arranging; design and planning of furniture,
fixtures and other furnishings which are not permanently attached to a building or
structure; selection, purchase and arrangement of surface coverings, draperies,
furniture, furnishings and other decorations; or any similar service.
Architects and engineers are also required to collect this tax when the services they provide
fall within those generally regarded as interior decorating and design.
OPINION
While Section 1105(a) of the Tax Law imposes a sales tax on retail sales of tangible personal
property, with the exception of certain enumerated exemptions, Section 1105(c) taxes only certain
enumerated services. Section 1105(c)(7) provides that interior decorating and design services are
subject to sales tax unless the design services are performed by licensed architects or engineers and
constitute the practice of architecture or engineering as defined in the State Education Law. When
an architect or engineer performs an interior design service that does not come within the Education
Law’s definition of architecture or engineering, sales tax must be collected on such services.
Services involving the preparation of drawings which require a licensed architect or engineer
as provided by the Education Law, and are rendered by a licensed architect or engineer, are not
subject to sales or use tax. See Morton Coren, Adv Op Comm T & F, December 29, 1997, TSB-A­
97(82)S. If the services involving the preparation of drawings are rendered by an unlicensed
individual under the general supervision of a licensed architect or engineer who analyzes, reviews

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March 1, 1999

and certifies the drawings, and the drawings are required by the Education Law to be certified by an
architect or an engineer, they are not subject to sales or use tax. See Morton Coren, supra. The
development by an unlicensed business of architectural designs which culminate in the preparation
by the unlicensed business of detailed working drawings, i.e., blueprints, from such designs, are not
subject to tax if the designs and drawings are prepared as part of the same contract for the
architectural design services and the working drawings are reviewed and sealed by a licensed
architectural firm. See Edward B. Rusin, Adv Op Comm T & F, April 22, 1985, TSB-A-85(6).
Accordingly, the planning and design services listed as numbers 1-3 above, and the preparation of
detailed working drawings (number 4), by the LLC are not subject to tax if the planning and design
services are an integral part of the preparation of the drawings, and the drawings are reviewed and
sealed for a given engagement by the LLP, a licensed architectural firm, as part of the same contract.
Analysis and advice regarding contractor/vendor bids (number 6) and on site monitoring and
coordination of contractors and vendors (number 7), are not enumerated taxable services under
Section 1105(c) of the Tax Law. The review, seal and filing of plans (number 5),and inspections and
sign-offs required by local laws or ordinances (number 8) are considered to be a part of the
architectural service provided by the LLP. (See Section 7301 of the Education Law)

DATED: March 1, 1999

NOTE:

/s/
John W. Bartlett
Deputy Director
Technical Services Bureau

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