My interior decorator separately billed for labor and marked up the furniture she sold me — is either charge exempt from Virginia sales tax?

Plain-English summary

A bank was audited for October 2015 through February 2020 and assessed sales and use tax on fixed-asset and general-expense purchases where tax had not been paid or remitted. The bank paid the assessment, then filed for a partial refund on a single transaction with an interior designer, arguing the invoice showed both a separately stated markup and a separately stated labor charge.

Separately stated labor is exempt. Under 23 VAC 10-210-770, charges purely for interior design and decorator SERVICES are not subject to sales tax. But that exemption depends entirely on how the invoice is structured: if a decorator bills services and merchandise together as one lump sum, the ENTIRE charge becomes taxable; if labor is billed separately from the tangible property sold, only the property portion is taxed. Here, the designer's invoice did separately state her labor charge — so that portion qualified as an exempt service charge and was refundable.

But the markup rides with the goods, not the labor. Virginia defines "sales price" (§ 58.1-602) to include the total amount charged for tangible personal property, including any markup for overhead, other costs, and profit, with no deduction for labor or service costs. The Department checked the invoice and found the markup was applied solely to the furnishings and décor the designer sold — not to her labor. Because a markup on goods is part of the goods' taxable sales price by definition, it stayed taxable even though it appeared on the same invoice, separately listed from the labor line.

Result: a partial win. The Department sent the case back to the audit staff with instructions to remove the labor charge from the tax base and issue a refund (plus any applicable refund interest) for that portion — but the markup on the furnishings and décor remained part of the taxable sale.

What this means for you

Interior designers and decorators

Structure your invoices to separately state your labor/design fee from the merchandise you sell. Doing so exempts the labor from sales tax — but it will NOT exempt any markup you charge on the furniture, fixtures, or décor itself; that markup is baked into the taxable sales price of the goods no matter how it's itemized.

Businesses buying design services and furnishings together

If your vendor's invoice bundles design fees and merchandise into one lump sum, expect the WHOLE charge to be taxed. Ask for separately stated labor if you want that portion treated as an exempt service — but don't expect the same treatment for any markup tied to the goods themselves.

Accountants and tax professionals

This ruling illustrates that "separately stated" isn't a single magic phrase — it matters WHAT is being separated from WHAT. Separating labor from goods can exempt the labor. Separating a markup from labor does nothing, because the markup is legally part of the goods' sales price regardless of how it's labeled on the invoice.

Common questions

Q: If my decorator separately lists a "markup" line, is that markup exempt like the labor is?
A: No. A markup tied to tangible personal property is part of that property's taxable "sales price" under Va. Code § 58.1-602, regardless of whether it's itemized separately from labor.

Q: What made the labor charge exempt here?
A: The designer's invoice separately stated the labor from the tangible property sold, satisfying the "separately stated" rule in 23 VAC 10-210-770 for exempt decorator services.

Q: What would have happened if the whole invoice were one lump sum?
A: The entire charge — services and merchandise together — would have been taxable, per 23 VAC 10-210-770's lump-sum rule.

Q: Does this ruling apply beyond interior decorators?
A: The "true object" and sales-price-includes-markup principles are general Virginia sales tax rules, but interior design/decorator services specifically have their own regulation (23 VAC 10-210-770) governing how labor and merchandise charges are treated.

Citations and references

Statutes and regulations:

• Va. Code § 58.1-603 — imposition of retail sales tax
• Va. Code § 58.1-602 — definitions of "retail sale" and "sales price" (sales price includes markups, without deduction for labor/service costs)
• 23 VAC 10-210-4040 — mixed service/property transactions; the true object test
• 23 VAC 10-210-770 — design and decorator services; lump-sum vs. separately stated charges

Prior rulings the Department relied on (described here, not linked): P.D. 09-165 (10/23/2009) (separately stated decorator labor exempt) and P.D. 21-65 (5/25/2021) (sales price includes markups on tangible personal property).

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 25-21

Original ruling text

February 13, 2025

Re: § 58.1-1821 Application: Retail Sales and Use

Dear *:

This will respond to your letter in which you seek correction of the sales and use tax assessment issued to * (the “Taxpayer”) for the period October 2015 through February 2020.

FACTS

An audit was conducted on the books and records of the Taxpayer, a bank, for the period at issue. The auditor found that the Taxpayer had failed to pay or remit tax on fixed assets and general expense purchases. The Taxpayer paid the assessment and filed an application for correction contending one transaction with an interior designer held in the audit included separately stated markup and labor.

DETERMINATION

Service Exemption

Virginia Code § 58.1-603 imposes retail sales tax on “every person who engages in the business of selling at retail or distributing tangible personal property in this Commonwealth…” A retail sale is defined, in part, in Virginia Code § 58.1-602 as “a sale to any person for any purpose other than for resale in the form of tangible personal property or services under this chapter…”

Conversely, charges for transactions resulting solely from the provision of services are generally exempt from the retail sales and use tax. Services provided in connection with sales of tangible personal property are included in the sales price and are, therefore, taxable unless specifically exempt by statute. See Virginia Code § 58.1-602, Virginia Code § 58.1-609.5 and Title 23 of the Virginia Administrative Code (VAC) 10-210-4040.

In some transactions involving both the sale of tangible personal property and the provision of services, the Department has recognized that the full amount charged may be exempt regardless of whether the charges for the service and property components are separately stated. As explained in Title 23 VAC 10-210-4040 D, the “true object” test is used to determine the taxability of these transactions.

Interior Design and Decorator Services

Under Title 23 of the Virginia Administrative Code (VAC) 10-210-770, charges for design and decorator services are not subject to the tax. However, when an interior decorator makes a lump sum charge for the sale of both services and tangible personal property, the total charge is subject to the tax. If the charges for services are billed separately from the tangible personal property, the sales tax only applies to the charge for the tangible personal property. See Public Document (P.D.) 09-165 (10/23/2009). The invoice provided shows that the designer separately stated the labor charges.

Sales Markups

The Virginia retail sales and use tax is imposed on the “sales price” of tangible personal property. Virginia Code § 58.1-602 defines “sales price” as “the total amount for which tangible personal property or services are sold, including any services that are a part of the sale ... without any deduction ... on account of ... labor or service costs ...“ As so defined, sales price includes any amount charged as a markup for overhead expenses and other costs and profit in connection with the sale of tangible personal property. See P.D. 21-65 (5/25/2021).

The invoice provided by the Taxpayer lists a markup between the tangible personal property provided and the designer’s service fee. A check of the markup amount indicates that it was applied solely to the items sold in the transaction. As such, the markup charged by the designer for furnishings and decor that she provided to the Taxpayer was subject to sales and use tax.

CONCLUSION

In accordance with this determination, the case will be returned to the audit staff to remove the charge for labor shown on the interior decorator’s invoice. A refund will be issued along with any refund interest as applicable.

The Code of Virginia sections and regulation cited are available online at law.lis.virginia.gov. The public documents and tax bulletin cited are available at tax.virginia.gov in the Laws, Rules, & Decisions section of the Department’s website. If you have any questions regarding this determination, you may contact * in the Office of Tax Policy and Legal Affairs, Tax Adjudication and Resolution Division, at or **@tax.virginia.gov.

Sincerely,

James J. Alex

Tax Commissioner

Commonwealth of Virginia

AR/3834.B

Related Documents

09-165

21-65