New York Advisory Opinion TSB-A-96(31)S: When an interior design firm buys furnishings for a client at its own discretion and bills the client a marked-up price (cost plus a design fee percentage), is the entire charge taxed as a sale of goods, or can the design fee be taxed at a lower rate as a separate service?

Plain-English summary

J.P. Molyneux Studio Ltd. is an interior design firm hired by clients to select and purchase furnishings and objects. It doesn't act as the client's purchasing agent -- it buys items at its own discretion in the course of providing its design service. What it bills the client is the manufacturer's net cost, plus an agreed-upon percentage that represents its design fee. The firm asked whether this fee (charged for work performed and delivered in New York City) is subject to sales and use tax.

The Department applied its own earlier T.K. Design, Inc. determination (TSB-H-85(213)S): because the design firm is buying the items for its own account rather than as the client's agent, the ENTIRE amount it charges the client -- the underlying cost of the goods plus its percentage design fee -- counts as receipts from the sale of tangible personal property under Tax Law § 1105(a), not as a separate, lower-taxed design service. That means the full combined charge is taxed at New York City's combined state-and-local rate (8-1/4% at the time). However, the Department noted an important carve-out tied to a 1995 law change: New York City repealed its own 4% local tax specifically on interior decorating and design services, effective December 1, 1995 (per TSB-M-95(13)S), leaving only the 4-1/4% state-level tax (state sales tax plus the 1/4% MCTD tax) on genuinely separate design-service charges. So if a design firm instead separately contracts for and separately itemizes its design service fee on the client's bill -- rather than folding it into a marked-up goods price -- that separately stated service charge is taxed only at the lower state rate, not the full City combined rate.

What this means for you

Interior designers and decorators billing clients in New York City

How you STRUCTURE your billing determines your tax rate. If you buy items for your own account and mark up the price with a built-in fee, treat the whole marked-up charge as a taxable sale of goods at the full combined NYC rate. If instead you separately contract for and separately itemize your design/decorating service (distinct from any goods you also sell), that service line is taxed only at the state rate, since NYC no longer taxes interior design services locally.

Clients hiring an interior designer

Ask whether your designer's fee is bundled into the price of items purchased on your behalf, or billed as its own separate line -- that choice affects your total tax bill, since a bundled cost-plus-fee charge is taxed as a full retail sale while a separately stated design fee gets the benefit of NYC's repealed local design-service tax.

Common questions

Q: Why is the whole marked-up price taxed as a sale, rather than splitting out the design fee?
A: Because the design firm isn't acting as the client's purchasing agent -- it buys the goods for its own account and resells them to the client at a marked-up price. Per the Department's T.K. Design precedent, when a designer purchases items this way, the entire amount charged (including the markup/fee) is receipts from a sale of tangible personal property, not a separate nontaxable or lower-taxed service fee.

Q: How would billing differently change the result?
A: If the design service is separately contracted for and separately itemized on the invoice -- distinct from any goods purchased -- that service charge is taxed only at New York State's 4-1/4% rate, not the full combined New York City rate, because NYC repealed its local tax on interior decorating and design services effective December 1, 1995.

Q: Does this ruling mean interior design services are now completely untaxed in New York City?
A: No -- only the NYC LOCAL portion of the tax on genuinely separate design services was repealed. The New York State 4% tax (plus the 1/4% MCTD tax) still applies to interior decorating and design services under Tax Law § 1105(c)(7), whether performed in New York City or elsewhere in the state.

Citations and references

Statutes and regulations:

• Tax Law § 1101(b)(3) (definition of receipt)
• Tax Law § 1105(a) (retail sale tax)
• Tax Law § 1105(c)(7) (interior decorating and design services tax)
• Tax Law § 1107 (New York City local tax, as amended by Chapters 297 and 298 of the Laws of 1995)
• Tax Law § 1109 (MCTD tax)
• Tax Law § 1212-A(f)(2) (former NYC design services tax authority, repealed)

Prior rulings and cases referenced:

• T.K. Design, Inc., Decision, State Tax Commission, December 4, 1985, TSB-H-85(213)S
• Technical Services Bureau Memorandum, Repeal of New York City's Sales Tax on Interior Decorating and Design Services, December 1, 1995, TSB-M-95(13)S

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1996.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a96_31s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-96 (31)S
Sales Tax
May 22, 1996

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO.S960125A

On January 25, 1996, the Department of Taxation and Finance received a Petition for
Advisory Opinion from J. P. Molyneux Studio Ltd., 29 East 69th Street, New York, New York
10021.
The issue raised by Petitioner, J. P. Molyneux Studio Ltd., is whether the fee charged by an
interior design firm in the City of New York for work performed and delivered in the City of New
York is subject to State and local sales and use taxes.
Petitioner submits the following facts as the basis for this Advisory Opinion. A design firm
is hired by its client to purchase an object. The design firm is not acting as agent for the client, but
purchases the items at its discretion in providing its interior design service. The cost to the client is
the net amount due by the designer to the manufacturer, plus an agreed upon percentage. The
percentage represents the designer's fee for providing the service of interior design.
Section l105(a) of the Tax Law imposes sales tax upon the receipts from every retail sale of
tangible personal property. Receipts are defined in Section l101(b)(3), in part, to mean "[t]he amount
of the sale price of any property and the charge for any service taxable under this article. . ."
Section 1105(c)(7) of the Tax Law imposes sales tax on the receipts from the following:
(7) Interior decorating and designing services, (whether or not in conjunction with
the sale of tangible personal property), by whomsoever performed, including interior
decorators and designers, architects or engineers; notwithstanding the foregoing, such
services shall not include services which consist of the practice of architecture, as
defined in section seventy-three hundred one of the education law, or the practice of
engineering, as defined in section seventy-two hundred one of the education law, if
the services are performed by an architect or engineer having a license or permit
under the education law.
Chapters 297 and 298 of the Laws of 1995 amended Articles 28 and 29 of the Tax Law, and
the Administrative Code of New York City, to repeal the 4 percent sales and compensating use tax
imposed by New York City pursuant to the authority of Section 1212-A(f)(2) of the Tax Law on
interior decorating and design services, effective December 1, 1995. Chapters 297 and 298 amended

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TSB-A-96 (31)S
Sales Tax
May 22, 1996
Section 1107 of the Tax Law to provide that the 4 percent sales and compensating use tax imposed
by this section in New York City does not apply to interior decorating and design services. Currently,
only the 4 percent Statewide sales and compensating use tax imposed by Sections 1105 and 1110
of the Tax Law, and the 1/4 percent sales and compensating use tax imposed by Section 1109 of the
Tax Law within the Metropolitan Commuter Transportation District, apply to interior decorating and
design services performed in New York City.
Technical Services Bureau Memorandum, TSB-M-95(13)S, December 1, 1995, entitled
Repeal of New York City's Sales Tax on Interior Decorating and Design Services, states in part:
Interior decorating services that are performed in conjunction with the sale of
tangible personal property by the decorator to the customer will be subject to tax if
the tangible personal property associated with the decorating service is transferred
or delivered to the customer, or the customer's agent or designee, in New York State.
In New York City, the portion of the bill that constitutes the sale of tangible personal
property is subject to the combined state and local (8-1/4%) sales and use tax rate.
If the interior decorating and design services are separately contracted for and
separately itemized on the bill or invoice given to the customer, the charges for the
interior decorating and design services are only subject to the New York State (4­
1/4%) tax, not the local New York City tax.
In T.K. Design. Inc., Dec St Tx Comm, December 4, 1985, TSB-H-85(213)S, the State Tax
Commission determined that the entire fee charged by the petitioner to its client for purchasing items
in providing its architectural and interior design services constituted receipts from the sale of the
tangible personal property and, therefore, was subject to sales and use taxes.
In this case, a design firm is hired by its client to purchase an object. The design firm is not
acting as agent for the client. The cost to the client for the object is the net amount due by the
designer to the manufacturer, plus an agreed upon percentage as fee for its service. Pursuant to T.
K. Design. Inc., supra, the entire fee charged by an interior design company for purchasing items in
providing its design services constitutes receipts from the sale of the tangible personal property and,
therefore, is subject to sales or use tax pursuant to Section l105(a) of the Tax Law. Accordingly, in
this case the total amount charged by the design firm to the client for the sale of the object, including
the additional percentage figure, is subject to the combined state and local (8-1/4%) sales and use
tax rate in New York City. If interior decorating and design services are separately contracted for and
separately itemized on the bill or invoice given to the customer, the charges for the interior

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TSB-A-96 (31)S
Sales Tax
May 22, 1996
decorating and design services are only subject to the New York State (4-1/4%) tax, not the local
New York City 4% tax. See TSB-M-95(13)S.

DATED: May 22, 1996

/s/
Doris S. Bauman
Director
Technical Services Bureau

NOTE: The opinions expressed in Advisory Opinions
are limited to the facts set forth therein.