When are an interior decorator's design and selection fees taxable in California?

Plain-English summary

Bona fide professional interior-design services—such as consultation, layout, coordinating furniture and fabrics, choosing color schemes, and supervising installation—were nontaxable. The memorandum advised separately stating those charges from fees related to selling tangible personal property.

Fees connected with acquiring or providing furnishings were taxable. A decorator who accompanied a client to showrooms or recommended furnishings treated that service as part of the furnishings' taxable selling price when the decorator made the merchandise sale. The same assistance could be nontaxable when no merchandise was sold.

Billing furnishings at cost did not avoid tax on the markup. If a separate fee included overhead or profit directly related to the property along with other services, the entire fee was taxable unless the decorator established a portion as bona fide nontaxable professional services.

Citations and references

• No numbered statute or regulation cited in the supporting memorandum
• May 20, 1996 memorandum from Sales and Use Department Deputy Director Glenn A. Bystrom asking how use tax applied to interior decorator and designer fees — request, background, examples, contracts, invoices, fee schedules, and other attachments not reproduced in the official PDF
• May 29, 1996 response from Assistant Chief Counsel Gary J. Jugum stating rules for professional services, merchandise selection, retail pricing, markup, overhead, profit, and mixed fees — no taxpayer facts, implementation instruction, agency adoption, audit, assessment, appeal, or later outcome supplied
• Official Annotation 295.1509.700's negotiated-fee, professional-service, showroom-assistance, merchandise-sale, retail-price, markup, and mixed-fee rules and May 29, 1996 date — annotation's phrase “taxable selling price of decorator fee” differs from the memorandum's “taxable selling price of the furnishings sold by the interior decorator”; it supplies no correction or additional proceeding record and omits the request, missing records, later outcome, and reliance status

Source

• Annotated Legal Opinions collection: https://cdtfa.ca.gov/taxes-and-fees/annotations-menu.htm
• Annotation page: https://cdtfa.ca.gov/lawguides/vol2/suta/295-0000-all.html
• Original supporting opinion: https://cdtfa.ca.gov/lawguides/annotations/295-1509-700.pdf

Original ruling text

State of California

Board of Equalization
Legal Division (MIC:82)

Memorandum

To:

Mr. Glenn A. Bystrom
Deputy Director
Sales and Use Department
MIC:43

From:

Gary J. Jugum
Assistant Chief Counsel

Subject:

Gross Receipts: Interior Decorator and Designer Services

295.1509.700

Date:

May 29, 1996

This is in response to your memorandum of May 20, 1996. You have inquired as to how use tax applies to fees charged by interior decorators and designers. Many designers and decorators charge a fee which may be a negotiated amount or a percentage of the selling price of furnishings, labor, and professional services. Fees for bona fide professional services such as consultation, layout, coordination of furniture and fabrics, selection of color schemes, ans supervision of installations, etc., are nontaxable. Billings for such nontaxable fees should be separately stated from fees related to sales of tangible personal property. Fees charged in connection with acquiring and providing furnishings or other tangible personal property are taxable. A fee charged solely for accompanying a client to showrooms, or for otherwise assisting in or recommending the selection of furnishings, is considered part of the taxable selling price of the furnishings sold by the interior decorator, not a nontaxable decorator fee. However, tax does not apply to charges for such services when no sales of merchandise are made. Normally, the selling price of the furnishings on which an interior decorator computes tax should be the “retail” price; that is, cost to the interior decorator plus a reasonable markup. If furnishings or other kinds of tangible personal property are billed at cost and a separately stated fee charge includes overhead, profit, etc., directly related to the property sold, as well as other charges, the total fee charged will be considered subject to tax, unless it is established that a portion of the fee is for nontaxable professional services as described above.

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