Which charges could an interior designer treat as nontaxable services, and which charges had to enter the taxable furniture sales price?

Subject

Interior-design services versus taxable furniture-related charges

Plain-English summary

Virginia treated genuine design services as nontaxable but included services connected with a furniture sale in the taxable price. The certified interior designer offered planning, showroom furniture sales, delivery and placement, and rearrangement of property customers already owned.

Planning and design fees were not taxable when they represented true consulting services and did not include furniture handling or sales. Those charges had to be billed separately from tangible personal property.

Rearranging a customer's existing furniture was also a nontaxable service when it was not connected with a sale. By contrast, placement fees charged with property the designer sold were part of the sales price and remained taxable whether separately stated or separately billed.

The designer could buy furniture exempt for resale, but had to collect tax from the customer on the full selling price, including placement, handling, and similar sale-related services.

What this means for you

• Separate genuine planning and consulting charges from invoices for furniture or other property.
• A separate line item does not make a sale-related placement or handling fee nontaxable.
• Rearrangement of customer-owned property may be a standalone nontaxable service when no sale is involved.
• Resale treatment shifts collection to the final customer; it does not remove tax from the retail sale.

Common questions

Were planning and design fees taxable?

No, when they were true services billed separately and did not include furniture handling or sales.

Was a placement fee taxable?

Yes, when charged in connection with property the designer sold.

What about moving furniture the customer already owned?

That rearrangement service was not taxable when unrelated to a property sale.

Citations and references

• Va. Code § 58.1-602.
• 23 VAC 10-210-770.

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 09-165

Original ruling text

October 23, 2009

Re: Request for Ruling: Retail Sales and Use Tax

Dear *:

This is in reply to your letter in which you request a ruling regarding the application of the retail sales and use tax to certain charges by * (the "Taxpayer"). I apologize for the delay in responding.

FACTS

The Taxpayer is a certified interior designer. The Taxpayer offers customers its expertise in interior design. The Taxpayer also offers customers the opportunity to view the displays in the Taxpayer's showroom and order specific furnishings from the various manufacturer catalogs available. The Taxpayer requests guidance on the application of the tax to charges for planning. The Taxpayer may also charge for delivery and placement of items purchased from the Taxpayer. Lastly, the Taxpayer charges for the rearranging of items owned by the customer. The Taxpayer seeks guidance on how to properly separately state charges for services from charges for tangible personal property on sales invoices to its customers.

RULING

Title 23 of the Virginia Administrative Code (VAC) 10-210-770 sets forth the application of the sales and use tax to interior decorators.

The tax does not apply to an interior decorator's charges for services. When a decorator goes beyond the rendition of services and sells tangible personal property, the decorator must register as a dealer and collect and pay the tax on retail sales. When a decorator makes a lump sum charge for services and furnishes tangible personal property, the tax applies to the total charge, unless the charge for services is billed separately from the tangible personal property.

As set forth in the regulation, if an interior designer goes beyond rendering services and sells tangible personal property and makes a lump sum charge for the design or consulting services and for tangible personal property, such lump sum charge is taxable. The invoicing of these services must be separate from the invoicing of tangible personal property.

Planning and Design Fees

As provided in the foregoing regulation, the tax does not apply to charges by interior decorators that are solely for design and consulting services. In this instance, the Taxpayer states that any fees for the planning or design of concepts do not include charges for the handling and/or sales of furniture. Accordingly, because such charges represent true services, they are not subject to the tax and must be billed separately from any charges rendered in connection with the sale of tangible personal property.

Rearrangement Charges

"Sales price" is defined under Va. Code § 58.1-602 as the "total amount for which tangible personal property or services are sold, including any services that are a part of the sale . . . ." In this instance, the Taxpayer charges a placement fee when selling tangible personal property. Because such fees are part of or in connection with the sale of tangible personal property, whether separately stated or separately billed, they are subject to the sales tax in accordance with the definition of sales price.

In some instances, the Taxpayer may adjust the floor plan of a customer's business or personal residence that may also encompass the physical movement of the customer's furniture. Such rearrangement fees represent services by the Taxpayer. Because the fees are not in connection with the sale and placement of tangible personal property, such fees would not be subject to the tax.

Sales by an Interior Designer

As provided in Title 23 VAC 10-210-770, when a designer goes beyond the provision of services and sells tangible personal property, the charge for such tangible personal property plus any services connected with the sale of such property represents a taxable sale by the designer. In the Taxpayer's situation, the purchase of the furniture is exempt from the tax as a purchase for resale, and the tax should be charged to the customer on the full selling price inclusive of any charges for services rendered in connection with the sale of the furniture. This includes placement fees, handling charges or other such similar related charges.

In the event that there are additional sales of tangible personal property with associated service fees involved, such charges should also be included on the invoice reflecting the sale of the furniture. This will ensure that all retail sales of tangible personal property are properly subjected to the tax and also properly accounted.

This response is based on the facts provided as summarized above. Any change in facts or the introduction of new facts may lead to a different result.

The Code of Virginia and regulation sections cited are available on-line at www.tax.virginia.gov in the Tax Policy Library section of the Department's web site. If you have any questions about this response, you may contact * in the Department's Office of Tax Policy, Appeals and Rulings, at ***.

Sincerely,

Janie E. Bowen

Tax Commissioner

AR/1-2582413532.Q