What did a Texas interior decorator report each quarter, retain for audit, and tax when billing for furniture, design, or installation?

Plain-English summary

The Comptroller told a home-based interior decorator to report three figures each quarter: total sales, taxable sales, and taxable purchases—items bought tax free but used by the decorator. Invoices, receipts, shipping documents, contracts, and similar support did not go with the return, but had to be detailed enough for audit and retained for at least four years.

Design and consultation services were nontaxable. Furniture passed through at the exact supplier price, including tax already paid, was not treated as a resale. But if the decorator marked up the item, it became a taxable sale; the decorator could buy it for resale or claim credit for supplier tax to avoid double tax.

Installation labor was taxable when the decorator or employees installed an item the decorator sold. Installation was nontaxable when the customer bought the item from someone else.

What this means for you

The tax result turned on the transaction, not simply the interior-decorator label. Separate design advice was nontaxable, while a marked-up product sale and installation tied to that sale were taxable. The letter's stated tax rates and local-sourcing examples were specific to 1991 and the redacted business location.

Common questions

What went on the quarterly return? Total sales, taxable sales, and taxable purchases.

How long were records retained? At least four years.

Was design consultation taxable? No.

Was furniture taxable when marked up? Yes. Exact-cost reimbursement including supplier tax was treated differently.

Was installation labor taxable? Yes for an item the decorator sold; no for an item the customer bought elsewhere.

Citations and references

• 34 Tex. Admin. Code Rule 3.281 — records
• 34 Tex. Admin. Code Rule 3.286 — seller and purchaser responsibilities
• 34 Tex. Admin. Code Rule 3.335 — filing reports
• 34 Tex. Admin. Code Rule 3.338 — tax paid to suppliers

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9109L1133D05

Original ruling text

September 24, 1991

Dear ****:

Thank you for your recent letter. As I understand it, you are in the interior
decorating business. Your business involves the following elements:

1. Consulting with customers in their homes/businesses and at my office
   (located in my home).

2. Purchasing furniture/decorating items at various department stores/wholesalers.
   Using my tax number when permissible.

3. Traveling to places of work (i.e. stores, clients, suppliers, home builders)
   in my privately-owned vehicle.

4. On occasion I will perform the labor to accomplish the desired work in the
   client's home/business. As my business grows it may be necessary to hire people
   to do some of the labor on a part-time basis.

You ask the following questions:

1. What should I include on my quarterly tax statement to cover all the
   requirements spelled out in Texas Tax Laws concerning my home business
   description?

Answer: Under separate cover, I have transmitted blank examples of our
sales and use tax report forms for your information. I have also sent
copies (with this letter and under separate cover) of our Rules 3.281,
3.286, and 3.335, which discuss keeping records and filing reports.

The information requested on the report is all you are required to provide
each quarter: Your total sales (gross receipts); your taxable sales (sales
upon which you were required to collect tax); and your taxable purchases
(items that you purchased tax free for one reason or another, but which
you used yourself). The remainder of the report isdesigned for you to
calculate the tax that is due.

Rule 3.281 goes into some more detail regarding the type of back-up
documentation you must keep on hand in the event of an audit. Basically,
your invoices, receipts, shipping documents, contracts, etc., must be
clear enough and detailed enough for an auditor to verify that you have
collected and remitted the correct amounts of tax. Don't bother to send
the supporting documentation with your tax reports; just be sure to keep
it for at least four years.

2. Can you recommend some reading material for the layman reader to help
   me in understanding the taxable and non-taxable items/services?

Answer: Also under separate cover, I have transmitted copies of some of
our publications that are designed to cover the basic elements of the
sales and use tax.

3. What computer software (IBM or Apple IIE) can you recommend to aid me?

Answer: To date, the state has not published any software of the type
you describe, and I am not aware of any privately produced software
that might help you. Also, legal restrictions would prevent us, as
state employees, from officially endorsing or recommending private
products.

It might be helpful to comment in general on the tax responsibilities
of an interior decorator. Basically, your design and consultation
services are not subject to tax. Also, if you purchase furniture and
other such items for your customers, pay tax to the supplier, and then
bill your client for these items at the exact same price (including
tax) that you paid for it, then you are not truly "selling" the
furniture, and you would not report or remit tax to us.

However, if you mark up these items when you sell them to your
customers, you are selling them and you must collect tax on the
selling price of the items. In this situation, you may issue a
resale certificate to your suppliers instead of paying tax, or
you may pay the tax and then take a credit on your tax report
(to avoid double taxation). (See enclosed Rule 3.338).

If and when you (or your employees) install an item that you
sold, you must also collect tax on your installation labor charges.
This is true even if you charge separately for installation.
However, if you (or your employees) install an item that your
customer bought from someone else, you do not have to collect
tax on the installation labor.

In the event you are making permanent improvements to your customers'
real property, or remodeling your customers' real property, or
repairing or restoring tangible personal property (i.e.,
reupholstering furniture), I have transmitted the applicable
rules for your information.

The tax rate you will charge is calculated as follows:

State tax: 6.25% (.06250) on all Texas sales.

City tax: Assuming your home (which is your place of business)
is located inside the ** city limits, you will collect
city sales tax for ** on all of your Texas retail sales,
regardless of where your customer is located. The rate is currently 1%
(.01000).

County tax: Assuming that your home is inside ** County,
you will collect county sales tax for ** County on all
of your Texas retail sales, regardless of where your customer is
located. The rate is currently .5% (.00500).

Therefore, your combined sales tax rate on all Texas retail sales
equals7.75% (.07750).

If your customer is located inside a local jurisdiction that imposes
a transit tax or a Special Purpose District tax, you will also
collect "use" tax for that local jurisdiction. However, if the transit
or SPD tax rate for that jurisdiction exceeds .5% (.00500), you do
not have to collect it. This is because the law prohibits combined
local taxes from exceeding 2% (.02000) on any transaction.

Exception: If the item that you purchase is shipped or delivered from
an out-of-state supplier directly to your client, then you will
collectlocal taxes differently. Basically, you will collect the state
use tax of 6.25% (.06250) and also any local use taxes (city, county,
transit, and/or SPD) based on the customer's location.

I have sent with your packet additional information on local tax rates
and an explanation of when to collect a local tax and why. Please note
that city and county residents periodically vote to change their local
tax rates. We publish updates every quarter.

This opinion is based on the facts presented. Different facts, though
similar, might lead to different answers. If you have further
questions, feel free to write or call me at 1-800-252-5555, ext. 3-3889.

Sincerely,

John Christian
Attorney
Tax Administration