How did California apply sales and use tax to reupholstery, carpeting, linoleum, area rugs, delivery, and other interior-decorating charges?

Plain-English summary

An interior-design firm asked ten questions about reupholstery, carpeting, linoleum, area rugs, delivery, moving furniture, invoices, and sales-tax returns.

Repair and installation labor did not have to be separated on the estimate, but the final invoice and records mattered. If the firm failed to segregate repair labor and the retail value of parts and materials exceeded ten percent of the total, audit staff could determine their retail selling price. Reupholsterers also had to separate material charges from labor in their records.

Under a lump-sum furnish-and-install carpet contract with no added sales-tax reimbursement, the decorator was the consumer of its materials: tax applied to its purchase, not its customer charge. A lump-sum linoleum installer likewise was the consumer of supplied materials. By contrast, a completed area rug made from a carpet remnant was taxable on the entire selling price, including fabrication labor.

Separately stated qualifying delivery could be excluded from taxable receipts, but the source lacked enough facts to decide a combined pickup charge or an undefined receiving charge. Moving-furniture charges could be listed separately. Loose back pillows were components of the reupholstered furniture; without record segregation, the historical rule treated 80 percent as nontaxable labor and 20 percent as taxable fabrication labor and findings.

What this means for you

Interior decorators and reupholsterers

Keep detailed records separating materials, fabrication, repair, installation, transportation, pickup, and other service charges.

Flooring contractors

Lump-sum treatment turns on who is the consumer of the installed materials and whether tax was paid on purchase rather than added on a marked-up material price.

Accountants and tax professionals

Treat the opinion's return line references and percentage allocation as historical; confirm current forms, regulations, and contract rules.

Common questions

Q: Did repair and installation labor have to be separate on the estimate?

A: No, but final invoices and records had to support the nontaxable labor and taxable property amounts.

Q: Was a lump-sum carpet installation taxable to the customer?

A: Not when the decorator was the consumer of materials and paid tax when purchasing them.

Q: Were loose back pillows part of reupholstered furniture?

A: Yes. Under the historical unsegregated-charge rule, 80 percent was nontaxable labor and 20 percent taxable fabrication and findings.

Q: Was an area rug made from a carpet remnant taxable?

A: Yes. Tax applied to the full charge, including fabrication labor.

Q: Were pickup, delivery, and receiving charges nontaxable?

A: Qualifying delivery had to be separately stated. The source lacked enough facts to decide pickup or an undefined receiving charge.

Citations and references

• California Sales and Use Tax Regulation 1546(b)(1)
• California Sales and Use Tax Regulation 1550(e)

Source

• Annotated Legal Opinions collection: CDTFA Annotated Legal Opinions
• Annotation page: Annotation 493.0100
• Original supporting opinion: 493.0100 PDF

Original ruling text

493.0100

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION

MEMBER
First District

1020 N STREET, SACRAMENTO, CALIFORNIA
(P.O. BOX 942879, SACRAMENTO, CALIFORNIA 94279-0001)
(916) 445-6450

BRAD SHERMAN
Second District, Los Angeles
ERNEST J. DRONENBURG, JR.
Third District, San Diego
MATTHEW K. FONG
Fourth District, Los Angeles

April 28, 1992

GRAY DAVIS
Controller, Sacramento

BURTON W. OLIVER
Executive Director

Ms. C--- L. P--Office Manager
A--- V--- Interiors
XXX --- Avenue
--- ---, CA XXXXX
SR -- XX-XXXXXX
Dear Ms. P---:

Your March 11, 1992 letter to Ms. S. K. Barbour of the State Board of Equalization’s Return Review Unit has been referred to the legal staff for reply. You asked whether we agree with your following interpretations of the application of tax to various charges by A--- V--Interiors: “1. Our estimate contracts do not have to list labor separately as long as tax exempt repair and installation labor is identified on the subsequent billing to the client? The problem is that on some estimates, for instance reupholstery, the customer is aware of the per yard price of the fabric being used, so if we list the labor charges separately it will reveal our profit.” We agree. You are not required to separately state charges for repair and installation on your estimates to your client. However, if you do not segregate such charges on your final invoice to the client, the retail selling price of parts and materials you furnish in connection with the repairs will be determined by the Board’s audit staff based on information available to it unless the retail value of the property is ten percent or less of the total charge. (Sales and Use Tax Reg. 1546, Installing, Repairing, Reconditioning in General, subd. (b)(1)). When you reupholster furniture, you are required to segregate charges for materials (other than charges for findings) from labor charges in your records. (Reg. 1550, Reupholsterers, subd. (e)). “2. For lump-sum contracts such as carpeting we should include everything in one amount on our invoice? Can we list moving furniture at the bottom of the estimate since we often don’t know if a client will do this himself or have our installers do it?”

Ms. C--- L. P---

-2-

April 28, 1992
493.0100

If you bill your customer on a lump-sum basis for your contract to furnish and install carpeting, and you do not add sales tax reimbursement to the contract, you are the consumer of the materials you use. Sales tax applies to the sale to you of the materials. Tax does not apply to your charge to the customer for your furnishing and installing the carpeting. Accordingly, you may separately list the charge for moving furniture, either on your estimate or on your invoice. “3. Delivery charges to a client by our subcontractor, i.e. upholsterer, are nontaxable provided we do not charge the client more than we are billed? Does this include picking up the piece of furniture also? They are usually billed together, i.e. ‘Pick-up and Delivery $50.00.” In order for you to exclude the transportation charge from your taxable gross receipts, you must separately state the nontaxable delivery charges from the other taxable charges. We cannot give you an opinion as to the application of tax to the charge for “pick up” without a description of the charge. “4. On a lump-sum contract where we, as a consumer, have paid the tax to the dealer on the purchase price of the materials, should the price of the materials be listed on line 10b? Cost of Tax Paid Purchases Resold Prior to Use, and the difference between this taxable amount and the selling price quoted to our client be listed on line 10E, Other – Lump-Sum Contract?” Since this is an administrative matter rather than a legal one, we discussed this question with the audit staff of the San Jose District Office. You should report the entire charge to the customer on line 1 of your Sales and Use Tax Return and take a deduction on line 10(e) of your return with the applicable explanation of why you are deducting the amounts. “5. Is it alright to list a per yard price as well as a total on a lump-sum contract, i.e. furnish and install 100 yards of carpeting at $25.00 per yard =
$2500.00?”
Yes, where you are the consumer of materials and have paid sales tax reimbursement or use tax on the purchase of the material, you may prepare the invoice as you suggest. “6. When reupholstering a piece of furniture which has loose back pillows are they considered part of the reupholstery taxable using the 80% - 20% rule since they are functional pillows, in other words, the piece of furniture is not usable without them?” Yes, we believe that the pillows of a loose-pillow back piece of furniture are component parts of the furniture. If you do not segregate in your records the charges between taxable fabrication and nontaxable installation labor, 80 percent of your charge is nontaxable labor and 20 percent is taxable fabrication labor and findings.

Ms. C--- L. P---

-3-

April 28, 1992
493.0100

“7.
If we buy linoleum directly from our installer and have them install it, prep the floor, etc., do we pay tax on the linoleum or have they already paid tax to their supplier?” Assuming that the installer bills you on a lump-sum basis, the installer is the consumer of the linoleum, underlayment, and other materials which the installer furnishes in connection with installing the linoleum. The installer should pay sales tax reimbursement or use tax on his or her purchase of the materials. If the installer adds sales tax on a retail or marked up price of the materials, the Board will generally consider the installer as the retailer of the materials, and the installer must report and pay sales tax reimbursement on the billed price. “8. On a lump-sum carpeting contract we pay no tax on the installation bill, which includes labor, pad, tack strip, pull-up and haul, etc.?” We assume that this is a follow-on to the previous question where the installer bills you on a lump-sum basis and is the consumer of the materials. In such case, you are correct that you do not owe tax on your charge for the contract. “9. If we buy a carpet remnant from our carpet installers and have them make an area rug from it do we pay tax on the remnant as well as the fabrication labor?” Yes, if you sell an area rug which the installer has made from a carpet remnant, tax applies to your entire charge for the rug, including the cost for the labor to make the rug from the remnant. “10.

Are receiving charges on delivery taxable?”

We do not understand what you mean by this question; however, if you sell tangible personal property and make a charge for “receiving” which is not transportation from your place of business or other point from which shipment is made directly to the purchaser, you should not include the charge in your nontaxable delivery charge. We cannot give you an answer as to the application of tax to the “receiving charge” without a description of the property or labor which the charge represents. As you know, we have made a number of assumptions in answering your letter which may or may not be correct. We suggest that you contact us again if our assumptions are in error. In such case, please provide a complete description of the work you perform and the tangible personal property you provide to your client. Very truly yours,

Ronald L. Dick
Senior Tax Counsel