Are interior lighting design services taxable if the plans are delivered to the client electronically?

Plain-English summary

A New York City lighting design firm designs, advises on and selects lighting fixtures; its work includes meetings, presentations, bid evaluations and on-site construction observation, culminating in a set of plans delivered electronically (the contract says all documents are transmitted electronically, with any hard copies printed by others). It had been collecting sales tax but argued that, because it delivers electronically, its services should not be taxable, citing two prior opinions. It asked whether it must keep collecting tax.

The Office of Counsel concluded the services are taxable, even delivered electronically:

• Tax Law section 1105(c)(7) taxes interior decorating and design services — which include lighting design — whether or not tangible personal property is transferred (with a parallel use tax under section 1110(a)).
• Electronic delivery does not change the result. Interior design services can be delivered in many ways, including renderings/plans in electronic form; the firm's electronically delivered images are simply the culmination of its taxable design service.
• Point of delivery sets the rate (per Tax Bulletin ST-400). Plans delivered in New York are taxable; plans delivered out of state are not (though later use in New York triggers use tax). Integrated jobs with on-site advice can be sourced to the property's location.
• New York City carve-out: New York City's local sales tax does not apply to interior design services (Tax Law section 1210(a)(4)(iv)). So if the firm delivers its services in New York City, only the New York State tax (including the MCTD tax) applies — not the NYC local tax.
• The two opinions the firm cited (graphic/logo design; patent and litigation drawings) are inapplicable — they addressed sales tax on tangible personal property, not the separate interior design services tax, which requires no transfer of property.

What this means for you

Interior/lighting design is taxed as a service — medium doesn't matter

New York taxes interior decorating and design services (including lighting design) regardless of whether anything tangible changes hands. Delivering electronically instead of on paper does not exempt the service — the tax is on the design service itself, not a piece of property.

New York City has a special carve-out

Unlike most services, NYC does not impose its local tax on interior design services. Jobs delivered in New York City bear State + MCTD tax only. Watch the point of delivery to get the rate right (and remember out-of-state delivery can still trigger New York use tax if the plans are used here).

Don't rely on TPP opinions for a services question

Opinions about electronically delivered drawings as property do not govern the interior design services tax, which is a different provision that does not depend on transferring property.

Common questions

Q: We deliver everything as electronic files — why is it still taxable?
A: Because the tax is on the interior/lighting design service itself (Tax Law section 1105(c)(7)), not on a tangible deliverable. Electronic delivery does not change the service's taxability.

Q: We're in New York City — do we charge the NYC local tax?
A: No. NYC does not tax interior design services, so a NYC-delivered job is subject only to New York State tax (including the MCTD tax).

Q: What sets the tax rate?
A: The point of delivery. Plans delivered out of state are not subject to New York tax, though using them in New York can trigger use tax.

Q: Can I rely on this opinion?
A: It binds the Department only as to the petitioner. Use it as guidance and confirm your own facts.

Citations and references

• Tax Law section 1105(c)(7) (interior decorating and design services)
• Tax Law section 1110(a) (compensating use tax; interior design services)
• Tax Law section 1210(a)(4)(iv) (New York City does not tax interior design services)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_2016.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a16_5s.pdf

Original ruling text

New York State Department of Taxation and Finance

TSB-A-16(5)S
Sales Tax
February 17, 2016

Office of Counsel
STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S130124A

The Department of Taxation and Finance received a Petition for Advisory Opinion from
REDACTEDREDACTEDREDACTEDREDACTEDREDACTEDREDACTEDREDACTED
(Petitioner). Petitioner asks whether its charges to customers for images delivered electronically
that embody its interior lighting design services are subject to sales tax.
We conclude that Petitioner’s receipts from its interior lighting design services are
subject to sales tax, even if it delivers such services to its customers by electronic means.
Facts
Petitioner is engaged in the business of providing lighting design services. It has an
office in New York City. Petitioner states that it has been collecting sales tax imposed by Tax
Law § 1105 on sales of its services.
In general, Petitioner designs, advises on, and aids in the selection of lighting fixtures
and equipment. Petitioner’s services include design and coordination meetings in New York
City, project administration, a conceptual lighting design presentation, meeting with its
customer’s architect, evaluating bids, construction observation, and various additional services.
All design and documentation services are undertaken by its own employees. The culmination
of Petitioner’s services is a set of documents. The contract provides that “All drawings,
specifications and other project documents will be transmitted electronically. Any hard copies
are to be printed by others from [Petitioner’s] electronic files.”
Although Petitioner has been collecting sales tax from its customers on charges for its
lighting design services, it believes that, based on the delivery of project documents in electronic
form, its services should not be subject to sales tax. Petitioner cites two Advisory Opinions,
TSB-A-09(20)S and TSB-A-12(23)S, in support of that view and questions whether it must
continue to collect tax.
Analysis
Tax Law § 1105 (c) (7) imposes sales tax on receipts from every sale, except for resale,
of interior designing services, whether or not in conjunction with the sale of tangible personal
property. Tax Law § 1110 (a) (C) imposes compensating use tax on the use within the State of
interior designing services. However, New York City’s local sales and use taxes do not apply to
such services. See Tax Law § 1210 (a) (4) (iv).
Interior design services relate to the planning and design of interior spaces and include
preparation of layout drawings, schedules, and specifications pertaining to the planning and
design of interior spaces; design and planning of fixtures; lighting design; and any similar

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TSB-A-16(5)S
Sales Tax
February 17, 2016

services. The point of delivery determines the sales tax rate that applies to a sale of such
services. See ST-400, Interior Decorating and Design Services (TB-ST-400).
When interior design services are delivered by providing only renderings or plans, the
sale is taxable where the plans are delivered to the purchaser. Plans or renderings delivered to
the purchaser in New York State are subject to state and local sales tax at the rate in effect at the
place of delivery, regardless of where the property that is the subject of the plan is located. Plans
or renderings delivered outside New York State are not subject to New York State and local sales
tax. However, later use of the plans or renderings in New York State will subject the purchaser
to New York State and local use tax based on the location where the plans or renderings are
used.
If the services provided consist of a combination of renderings or plans and on-site advice
under a single contract, and for a single charge, the sale is considered to be an integrated
transaction. The overall service is considered to be delivered at the location of the property
where the on-site advice is provided and at the time the on-site advice is given. If the property is
located in New York State, the sale is subject to State and local sales tax. On the other hand, if
the same services are sold under a single contract but the contract provides separate and
reasonable charges for each component, then the delivery of each component will be considered
separately. If the plans are delivered in New York, the separate charge for them would be
taxable. If the on-site service under the contract is provided in New York, the separate charge
would also be taxable. If the on-site service is provided out of state, the separate charge for that
service would not be taxable.
If a single contract includes a combination of renderings or plans and on-site advice, for a
single charge, and the property where the on-site advice is provided is located out of state, the
entire charge would not be taxable. However, if the designer delivers the plans into New York
but the on-site service is never provided (for example, the building is not built), then the charge
for the delivery of the plans into New York would become taxable at the time when it is
determined that the on-site service will not be provided. If the parties renegotiate a reduced
charge because the designer will not provide the on-site service, that reduced charge would be
the amount subject to tax. Otherwise, the entire original amount would be subject to tax.
Petitioner’s electronically delivered images are the culmination of its lighting design
services. Petitioner’s lighting design service also includes other activities, such as meetings with
its customers and their architects, presentations to the customer, bid evaluations, visiting the
construction site to observe, and other things. Interior design services may be delivered to the
customer in a variety of ways, including by providing only renderings or plans, whether or not in
electronic form. Thus, Petitioner’s electronic delivery of its interior lighting design service plans
remain a lighting design service subject to tax if delivered in this State as described in Tax
Bulletin ST-400.
As noted above, New York City’s local sales tax does not apply to interior design
services. If Petitioner’s services are delivered in New York City, they will be subject only to the
New York State sales tax, including the tax imposed on behalf of the Metropolitan Commuter
Transportation District. See Tax Law § 1210 (a) (4) (iv); TSB-M-95(13)S.

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TSB-A-16(5)S
Sales Tax
February 17, 2016

The Advisory Opinions that Petitioner cites do not change our analysis. In TSB-A09(20)S, Petitioner’s services included designing logos and graphic images and designing and
writing content for printed publications. This Advisory Opinion is not relevant to the question
presented here because it addressed the sales tax imposed on tangible personal property, not the
sales tax on interior design services. Moreover, that Advisory Opinion made clear that the
design services it addressed did not include interior decorating or design services subject to tax
under § 1105(c)(7). The analysis in TSB-A-12(23)S applied to the electronic delivery of
drawings created for submission to the US Patent Office or for use in court trials or mediation
and arbitration hearings. The electronic drawings were distinguished from physical drawings,
which would have been considered tangible personal property subject to the sales tax imposed by
Tax Law § 1105(a). Thus, neither of these Advisory Opinions affects the analysis of whether a
service is subject to the sales tax imposed on interior design services, which does not require the
transfer of any component of tangible personal property and is taxable under a different
provision of law.

DATED: February 17, 2016

NOTE:

/S/
DEBORAH R. LIEBMAN
Deputy Counsel

An Advisory Opinion is issued at the request of a person or entity. It is limited to the
facts set forth therein and is binding on the Department only with respect to the
person or entity to whom it is issued and only if the person or entity fully and
accurately describes all relevant facts. An Advisory Opinion is based on the law,
regulations, and Department policies in effect as of the date the Opinion is issued or
for the specific time period at issue in the Opinion. The information provided in this
document does not cover every situation and is not intended to replace the law or
change its meaning