When were interior-design, procurement, and merchandise fees subject to Florida sales tax?

Plain-English summary

Interior-design fees were taxable when charged in conjunction with a sale of furniture or other tangible personal property. Separate invoices, different billing dates, or hourly pricing did not remove a design or procurement charge from the taxable sales price when it related to merchandise sold to the client.

Stand-alone consultation and design services were nontaxable when the client could decline the merchandise phase and owed the design fee whether or not it bought goods. Procurement fees were always tied to the property purchase and taxable. Travel and lodging passed through as part of merchandise pricing also could not be deducted from the sales price merely because they were separately stated.

What this means for you

The operative question was whether the service fee was contingent on or connected with a goods sale. Contract language giving the client a genuine purchase option and making the design fee independently payable supported nontaxable treatment.

Common questions

Q: Did a separate design contract automatically make the fee nontaxable? No. The full facts still controlled.

Q: Were procurement fees taxable if based on hours instead of a markup? Yes.

Q: Could an initial design fee stay exempt if the client later bought merchandise? Yes, when the fee was separately stated, independently owed, and not charged in conjunction with the property sale.

Citations and references

• Fla. Stat. §§ 212.02(15)(a), 212.02(16), and 212.05(1) — sales and sales price
• Fla. Stat. § 212.06(1)(a) — sales tax imposed
• Fla. Stat. § 212.17(1)(a) and (c) — credits and refunds
• Fla. Admin. Code rr. 12A-1.001(2)(a) and 12A-1.006(12) — decorator and service charges
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 02A-031

Original ruling text

SUMMARY

QUESTION: What design services subject to Florida sales
tax?

ANSWER - Based on Facts Below: Fees charged by designers in
conjunction with the sales of tangible personal property
are a part of the total charge for the tangible personal
property and are subject to tax, even when separately
itemized and charged to their clients at a different time.
Fees charged by an interior decorator or designer solely
for consultation or designing services when no sale of
tangible personal property occurs in conjunction with those
services are not subject to tax. Fees for the procurement
of tangible personal property are necessarily charged in
conjunction with the sale of that property and are always
taxable. A provision in a design contract that gives the
customer the option to purchase tangible personal property
or not or that makes the design fee payable whether or not
the customer purchases tangible personal property renders
the design fee separate from the purchase price of any
tangible personal property that the client may purchase.

Aug 20, 2002

Re: Technical Assistance Advisement 02A-031
Sales Tax - Interior Design Services
Petitioner: XXX (hereinafter "Taxpayer")
FEI: XX
Sections 212.02(15) (a) and (16), 212.05(1), 212.06(1)(a),
212.17(1)(a) and (c), F.S.
Rule 12A-1.001(2)(a), 12A-1.006(12), F.A.C.

Dear :

This is in response to your letter to the Florida Department of
Revenue dated July 3, 2001. You asked for a technical assistance
advisement confirming that the taxation of your client's

"Interior Design Agreement" is in accordance with law.

Facts

Taxpayer specializes in the interior design of retirement
communities and works on projects five years in length. The
initial phase of taxpayer's contract with a client is for
professional consultation and direction. This consultation
involves advising the clients' architects and development team
members in interior design. The initial phase does not identify
any particular tangible personal property. The client may
eventually request that Taxpayer procure the tangible personal
property for the project. If so, according to Taxpayer, a
totally separate merchandise contract is prepared, although a
review of the contracts shows that the "separate merchandise
contract" is actually another phase of the same contractual
transaction. Additionally, some clients request a procurement
contract proposal to advise them what Taxpayer would charge for
its time to handle the purchasing of merchandise. A review of
the contracts shows that the procurement is, likewise, another
phase of the contractual transaction. The procurement fee is the
charge for time spent on obtaining merchandise, reselections
that occur due to discontinued merchandise, and expediting the
delivery of the merchandise. The fee charged is based on time,
rather than on markup or percentage.

Taxpayer submitted two blank contracts as examples. The first
contract, hereinafter "Contract A," is entitled ASID Document
ID110, Abbreviated Form of Agreement for Interior Design
Services. It appears that Taxpayer may have modified this
document from the standard contract, based on the formatting of
the typing. Article 1 of Contract A lists the Designer's
Services and Responsibilities, the services to be provided by
the Taxpayer under the Terms and Conditions of the Contract.
These services and responsibilities are characterized as
Programming and Concept Phase, Schematic Design, Design
Development, Contract Documents, Construction
Observation/Administrative Phase, Procurement Phase, and
Installation Phase.

The Programming and Concept Phase calls for the Taxpayer to

develop an understanding of the client's project, including
developing ideas, a conceptual budget, and a schedule of design
activities. In Schematic Design, Taxpayer provides initial
elevations and preliminary layouts for furniture and lighting,
and establishes budgets for furniture and other d‚cor. In Design
Development, Taxpayer finalizes all elevations, floor plans, and
other aspects of the design work, then presents the final budget
for all furnishings. In Contract Documents, Taxpayer produces
the necessary documentation to ensure that the interior design
is properly executed, coordinates utility outlets, presents
color presentation boards for final approval, and provides
specification booklets to the contractor for paint, wall paper,
flooring, etc.

In the Construction Observation/Administration Phase, Taxpayer
oversees the construction as it relates to the interior design.
The Procurement Phase, which occurs if requested by the Client,
calls for Taxpayer to act as Client's purchasing agent in
procuring furnishings. This involves preparing furnishings
specification booklets in accordance with previously selected
furnishings and window treatments, artworks, plants and
planters, and signage, and coordinating receipts of shipments,
including warehousing of such items. The Installation Phase
includes Taxpayer's coordination and supervision of installation
of furnishings and verifying for client that all items purchased
are actually installed.

Contract A calls for Client to pay Design Fees, Procurement
Fees, Procurement, Expense Reimbursement, and Additional
Services. These fees are paid at various points in time in the
contract. The design fees cover design services; procurement
fees cover procurement and installation management services;
procurement covers the actual cost of goods, including shipping,
storage and installation; expense reimbursement includes travel
expenses, reproduction expenses, special postage, long distance
telephone calls, facsimile charges, design materials, interior
renderings, product manuals, and in-town mileage; additional
services include services billed at an hourly rate for services
not included within the scope of services outline in the
contract.

The second contract, hereinafter "Contract B," is entitled
Standard Fee Contract, and appears to have been prepared by
Taxpayer. The Scope of Services in the contract includes
programming, schematic design, design development, contract
documents, construction observation, preparation of
specification booklet, and specification writing or the
preparation of furnishings specification booklet. A separate
section of Contract B provides for Additional Services. The
additional service provided is the purchase of the merchandise,
which is described as "optional." In addition to charging for
the services described in the Scope of Services, and the
merchandise, if applicable, Taxpayer charges for long distance
telephone calls, travel and related expenses, renderings and
models at the request of the client, reproductions
(photocopies), blueprints, postage and handling of drawings,
schedules, specifications and documents, as reimbursable
expenses.

Requested Advisement

Taxpayer requests advice on the taxability of the different
phases of the contracts, and specifically asks:

1. Is the design fee in a contract for professional
   consultation that is a totally separate document from the
   contract for the purchase of tangible personal property,
   where the contracts are executed in different time periods,
   taxable?

2. Is the taxability affected by a provision in the design
   contract that the client has an option to enter into a
   separate contract for the provision of merchandise?

3. Is a procurement fee not taxable as a "fee for professional
   time" where it is based on the time necessary to determine
   the availability of merchandise, expediting delivery of
   merchandise, etc., rather than a percentage of the cost or
   a mark-up?

Law and Discussion

The burden of showing that the price of the tangible personal
property does not include the services in question is on
Taxpayer.(FN 1) The charges for service provided by Taxpayer are
never taxable unless or until they are part of the sale of
tangible personal property by Taxpayer to the client charged for
those services.

Sections 212.02(16) and 212.06(1)(a), F.S., provide that every
sale of tangible personal property is taxable, including any
services that are a part of the sale. Rule 12A-1.006(12),
F.A.C., states that charges by an interior decorator are exempt
from tax when no materials or supplies are used. According to
Rule 12A-1.001(2)(a) 1., F.A.C., an interior decorator's fee is
taxable and cannot be exempted as a professional or personal
service charge when the transaction involves the sale of
tangible personal property. Rule 12A-1.001(2)(a) 2. and 3.,
F.A.C., make it clear that the design fee is exempt only if it
is charged for advice and is not contingent on or part of the
sale of tangible personal property.

Rule 12A-1.001(2)(a), F.A.C., which is in the process of
revision for clarification, until the revision is complete,
provides:

1. An interior decorator's fee is taxable as part of the
   selling price under Section 212.02(16), F.S., or as a
   part of the cost price under Section 212.02(4), F.S.,
   and cannot be exempted as a professional or personal
   service charge when the transaction involves the sale
   of tangible personal property. This is true when the
   fee is paid in the form of a trade discount, as is the
   case when a supplier grants the decorator a trade
   discount and the decorator in turn bills the client
   for the full list price. The decorator fee is also
   taxable when it appears as an amount added to the
   decorator's cost when billed to the client for
   tangible personal property on a cost plus basis.

2. If the decorator's fee is solely for designing the
   interior and exterior decorative scheme or for
   advising his clients and recommending colors, paints,

wallpaper, fabrics, brands, sources of supply, etc.,
and there is no sale of tangible personal property
involved, then such fee would be exempt as a
professional or personal service transaction.

3. In some instances, the decorator may receive a fixed
   sum, which is not in any way contingent upon the sale
   of tangible personal property to the same client. In
   such cases the decorator's fee cannot be considered as
   a part of the selling price of the property sold
   because there is no connection between the
   transactions.

4. If the decorator's client reimburses the decorator for
   the payroll cost of personnel on the decorator's
   payroll assigned to a specific project, the duties
   performed by such employees will determine whether or
   not this item is taxable. For example, if these
   employees were engaged in painting murals on walls,
   etc., the charge made for their services is exempt,
   whereas, if these employees fabricate tangible
   personal property such as making bedspreads or
   draperies then the charge for their labor is taxable.

There is language proposed for the purpose of clarifying Rule
12A-1.001(2), F.A.C. As currently published for the amendment
process, subject to public comment and further amendment, the
proposed language reads:

SERVICE TRANSACTIONS.

(a)1. Fees charged by interior decorators or designers in
conjunction with the sales of tangible personal property
are a part of the total charge for the tangible personal
property and are subject to tax, even when separately
itemized and charged to their clients on a cost plus basis.

2. When the sale of tangible personal property by an
   interior decorator or designer to a client requires the
   client to purchase consultation or design services, the
   consultation or design fees are a part of the total charge

for the tangible personal property and are subject to tax,
even when the fees are separately itemized and charged to
the client.

3. When an interior decorator or designer bills a client
   for the full list price of the tangible personal property
   sold and then receives the equivalent of a fee through the
   decorator's or designer's supplier in the form of a trade
   discount, the decorator or designer is required to collect
   tax on the total amount billed to the client.

4. Fees charged by an interior decorator or designer solely
   for consultation or designing services when no sale of
   tangible personal property occurs in conjunction with those
   services are not subject to tax. Examples of fees charged
   solely for services rendered include designing a decorative
   scheme, advising clients, or recommending colors, paints,
   wallpaper, fabrics, brands, or sources of supply.

5. A fee charged by an interior decorator or designer is
   solely for services and not in conjunction with the sale of
   tangible personal property by the decorator or designer to
   the same client if all of the following conditions are met:

a. the fee is allocated in the contract to consultation
or designing services;
b. the contract provides for separate pricing of any
tangible personal property that may be purchased by
the client from the decorator or designer;
c. the consultation or design services fee is separately
stated from the sales price of any tangible personal
property on statements and invoices;
d. the client is obligated to pay the consultation and
designing services fee regardless of whether the
client purchases any tangible personal property from
the decorator or designer under the contract;
e. the client is not obligated to purchase tangible
personal property from the decorator or designer;
f. the tangible personal property that is purchased from
the decorator or designer is of a type that is
routinely purchased without such service;

g. the amount of the consultation fee is not contingent
upon whether the client purchases any tangible
personal property from the decorator or designer or
upon the sales price of any tangible personal property
the client purchases from the decorator or designer.

6. Interior decorators or designers who contract to furnish
   and install tangible personal property which becomes a part
   of realty are the ultimate consumers of materials and
   supplies they use to perform contracts unless the contract
   is one described in Rule 12A-1.051(3)(d), F.A.C. In the
   case of all contracts other than those described in that
   paragraph, the interior decorator or designer should not
   charge tax to its customers. It should pay tax to its
   suppliers on all purchases of tangible personal property
   that will be incorporated into a real property improvement
   and should not extend an Annual Resale Certificate to make
   tax-exempt purchases. It should also pay tax on all
   materials it fabricates for its own use in performing such
   contracts. If the interior decorator or designer uses a
   subcontractor to install tangible personal property, the
   subcontractor is responsible for paying tax on materials
   and supplies purchased and used by the subcontractor as
   provided in Rule 12A-1.051, F.A.C. If the contractor uses
   materials and supplies furnished by the interior decorator
   or designer, the decorator or designer is responsible for
   paying tax due on the materials and supplies furnished to
   the subcontractor. See Rule 12A-1.051, F.A.C., for guidance
   on the taxation of real property contractors and
   subcontractors.

Regardless of whether Taxpayer's design/architectural review fee
is calculated as a lump sum or on an hourly basis, its
taxability depends on whether Taxpayer sells tangible personal
property in conjunction with the design. The Taxpayer is
obligated to collect and remit the tax on the design fee at the
moment of sale of the tangible personal property, regardless of
whether the customer pays immediately or over time. Taxpayer is
entitled to a refund or credit of the tax collected and remitted
on cancellation of the order and presentation of proof of refund
of the tax to the customer, as long as the cancellation is

within the statute of limitations.

Section 212.06(1)(a), F.S., provides that tax at the rate of 6
percent of the retail sales price is due as of the moment of
sale, collectible from all dealers on the sale at retail in this
state of tangible personal property or services taxable under
Chapter 212, F.S. Section 212.02 (15) (a), F.S., provides that
"Sale" means any transfer of title or possession, or both,
conditional or otherwise, of tangible personal property for a
consideration. The full amount of the tax on a credit sale,
installment sale, or sale made on any kind of deferred payment
plan shall be due at the moment of the transaction in the same
manner as on a cash sale.

In the case of the Taxpayer's transactions, when the sale occurs
will depend on the terms of the agreement. If the purchase
agreement requires the client to approve all of the tangible
personal property furnished, even if the property is furnished
over time, the tax is due when the client approves and accepts
it. Otherwise, tax is considered to be imposed when the client
is invoiced for the tangible personal property and that property
has been delivered to the client's location. Tax is not imposed
at the time that the deposits or down payments are made.
However, the amount of tax applicable to the down payment or
deposit will be due upon the delivery of the tangible personal
property. The entire amount of the design fee is taxable at the
time of the first sale of tangible personal property, the sales
price of which includes that service.

Section 212.17(1)(a) and (c), F.S., provides that when there is
a return of merchandise after the tax has been collected on that
sale and the purchase price and sales tax have been refunded to
the customer, the dealer is entitled to reimbursement of the
amount of tax refunded to the purchaser by the dealer.
Therefore, the design fee might be taxable when tangible
personal property is ordered only to become nontaxable if the
order is cancelled. In that case, Taxpayer is obligated to
collect and remit the tax on the design fee at the moment of
sale (acceptance by the customer of the transfer of title or
possession) of the tangible personal property, regardless of
whether the customer pays immediately or over time. Taxpayer is

entitled to a refund or credit of the tax collected and remitted
on cancellation of the order and proof of refund of the tax to
the customer, as long as the cancellation is within the statute
of limitations.

With respect to the reimbursed expenses for travel, if they are
rendered in conjunction with the provision of tangible personal
property, they are taxable. The taxable "sales price" of
tangible personal property as defined in Section 212.02(16),
F.S., is "the total amount paid... without deduction therefrom
on account of the cost of the property sold, the cost of
materials used, labor or service cost, interest charged, losses,
or any expense whatsoever." As part of performing the contract
and selling tangible personal property, Taxpayer incurs travel
and lodging costs that are passed through as part of the
pricing. Taxpayer cannot deduct these costs and remove them from
the sales price just because they are separately stated.

Advisement

1. The design fee in a contract for professional consultation
   that is a totally separate document from the contract for
   the purchase of tangible personal property, where the
   contracts are executed in different time periods, may still
   be taxable if the sale of the tangible personal property is
   in conjunction with the design fee. However, the separate
   contracts and separation of time periods in the execution
   of the contracts can be indications that the sale of the
   merchandise was not in conjunction with the design fee,
   depending on all of the facts and circumstances.

2. The taxability is affected by a provision in the design
   contract that the client has an option to enter into a
   separate contract for the provision of merchandise. This
   option indicates that the sale of the tangible personal
   property would not be in conjunction with the provision of
   the design services.

3. The taxability of a procurement fee would not be a "fee for
   professional time", whether or not it is based on the time
   necessary to determine the availability of merchandise,

expediting delivery of merchandise, etc., rather than a
percentage of the cost or a mark-up. A procurement fee is
always in conjunction with the purchase of tangible
personal property and is part of the taxable sales price.

4. Design fees and similar fees in the initial phase of the
   contract for services, where Client does not purchase
   tangible personal property incident to the contracted
   services, are not subject to Florida sales tax. See
   Sections 212.02(16) and 212.06(1)(a), F.S., and Rules 12A1.006(12) and 12A-1.001(2)(a)2. and 3., F.A.C. If the
   amount of these design fees is separately stated and not
   charged in conjunction with the provision of tangible
   personal property, but Client ultimately purchases tangible
   personal property pursuant to the procurement and
   merchandise options, the design fees would not be taxable.

5. Charges pursuant to the merchandise and procurement phases
   of the contracts are taxable. It is not relevant that fees
   charged pursuant to these contracts are based on hours
   spent or some other measurement other than the percentage
   of tangible personal property purchased. They are taxable
   as services that are part of the sales price of tangible
   personal property.

This response constitutes a Technical Assistance Advisement
under Article 213.22, F.S., which is binding on the Department
only under the facts and circumstances described in the request
for this advice, as specified in Article 213.22, F.S. Our
response is predicated on those facts and the specific situation
summarized above. You are advised that subsequent statutory or
administrative rule changes, or judicial interpretations of the
statutes or rules upon which this advice is based, may subject
similar future transactions to a different treatment than
expressed in this response.

You are further advised that this response, your request, and
related backup documents are public records under Chapter 119,
F.S., and are subject to disclosure to the public under the
conditions of Article 213.22, F.S. Confidential information must
be deleted before public disclosure. In an effort to protect

confidentiality, we request you provide the undersigned with an
edited copy of your request for Technical Assistance Advisement,
the backup material, and this response, deleting names,
addresses, and any other details which might lead to
identification of the Taxpayer. Your response should be
received by the Department within 15 days of the date of this
letter.

Sincerely,

Karen Kugell
Senior Attorney
Technical Assistance and Dispute Resolution
(850) 922-4834
KK/

Control #: 45852

FOOTNOTE 1. Although taxing statutes are strictly construed
against a taxing authority, exemptions are strictly construed
against the taxpayer. State ex rel. Szabo Food Services, Inc. v.
Dickinson, 286 So.2d 529 (Fla. 1973; United States Gypsum Co. v.
Green, 110 So.2d 409 (Fla. 1959).