Texas Letter Ruling 9211579L: Draperies/Curtains — Installation In New Houses/Residences Vs. Existing Houses/Residences

Plain-English summary

An interior designer wrote to the Texas Comptroller asking about sales tax responsibilities when remodeling residential property. The designer's work included a professional fee, refinishing existing cabinets permanently attached to the home, wall preparation for paper hanging, and labor and materials for making draperies -- all billed to the customer on a cost-plus basis.

The Comptroller's answer sorted the work into three buckets:

• Cabinets and wallpaper (real property): Because the cabinets are permanently attached to the home and wallpaper becomes part of the wall, both count as real property. That means the labor to refinish the cabinets and to prepare walls and hang paper is not taxable, but the materials used are taxable.
• Draperies (tangible personal property): Draperies and window coverings generally aren't real-property improvements because they aren't permanently attached to the building -- they're treated as tangible personal property. Selling and installing tangible personal property is normally taxable on the whole charge (labor and materials together).
• Exception -- acting as a contractor: If the interior design company is serving as the contractor on a residential repair/remodeling job, then the labor to install the draperies (along with other labor in that contract) is not taxable. But if the designer is instead just providing design services (suggesting fabrics, buying furniture, etc.) and separately makes, sells, and installs draperies that aren't permanently attached to the realty, then tax is due on the full charge for both labor and materials.

A separately stated design fee for professional services is never taxable, whether the work is on residential or nonresidential property.

On the local tax side: for a cost-plus residential remodeling contract, local tax is based on the location of the jobsite. For the sale and installation of tangible personal property (like draperies sold outside a contractor role), city sales tax is based on the designer's place of business, and MTA sales tax also applies if the customer is within an MTA. Local county, special purpose district, or MTA use tax may also be due if the customer's location has adopted those taxes.

What this means for you

Interior designers and remodeling contractors

Whether your drapery installation is taxable turns on your role in the job. If you're contracting to repair or remodel someone's residence and draperies are part of that contract, your installation labor isn't taxed the way a standalone drapery sale would be. If you're just a designer selling and installing draperies outside a contractor role, tax applies to your full labor-and-materials charge.

Business owners doing mixed real-property/personal-property work

This ruling illustrates a recurring split in Texas: work that becomes part of real property (like built-in cabinets or wallpaper) taxes labor and materials differently than work involving tangible personal property (like draperies). Track which category each part of a job falls into, since the tax treatment of labor differs.

Accountants and tax professionals

Note the local tax sourcing rules described here: jobsite-based local tax for cost-plus residential remodeling contracts versus place-of-business-based city tax (plus MTA tax where applicable) for sales and installation of tangible personal property. The letter also flags that county, special purpose district, or MTA use tax may apply depending on the customer's taxing jurisdiction.

Common questions

Q: Is the labor to install draperies always taxable?
A: Not always. If you're installing the draperies as part of a repair/remodeling contract where you're acting as the contractor, that labor is not taxable. If you're not filling a contractor role -- just providing design services and separately selling/installing draperies not permanently attached to the home -- tax applies to the full labor and materials charge.

Q: Is a design fee taxable?
A: No. A separately stated design fee for professional services is not taxable, whether the property is residential or nonresidential.

Q: How are cabinets and wallpaper treated differently from draperies?
A: Cabinets permanently attached to the home and wallpaper are treated as real property, so the labor to refinish cabinets or prepare walls and hang paper is not taxable (though the materials are). Draperies, by contrast, are generally treated as tangible personal property because they aren't permanently attached to the realty.

Q: Which local taxes apply?
A: For a cost-plus residential remodeling contract, local tax is based on the jobsite location. For sale and installation of tangible personal property, city sales tax is based on the seller's place of business, and MTA sales tax applies if the customer is in the MTA. Local county, special purpose district, or MTA use tax may also apply depending on the customer's taxing jurisdiction.

Q: Can I rely on this letter for my own situation?
A: This letter states it is based on the facts presented to the Comptroller, and the opinion may change if the facts are different. It's a 1992 letter ruling redacted for publication -- consult a licensed Texas tax professional to confirm how it applies to your facts today.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9211579L

Original ruling text

November 18, 1992

Dear **:

Thank you for your letter of November 4, 1992, concerning your tax
responsibilities as an interior designer. As I understand it, you question your
responsibilities when you are remodeling residential property. The services you
provide include your professional fee, refinishing existing cabinets
permanently attached to realty, wall preparation for paper hanging, and labor
and materials for making draperies. You contract with your customer on a
cost-plus basis.

Cabinets that are permanently attached to the home and the wallpaper are real
property. As such, the labor to refinish the cabinets and the labor for wall
preparation and paper hanging is not taxable, but the materials are taxable.

Generally speaking, draperies and window coverings are not considered
improvements to real property because they are not permanently attached to
realty. Rather, these items are considered tangible personal property. The sale
of and labor to install tangible personal property is taxable in its entirety.
However, an exception exists if you are selling and installing draperies as a
part of a repair/remodeling contract. For example, if your interior design
company is serving in the capacity of contractor to repair or remodel
residential property, then the labor to install the draperies (or any other
labor charges in the contract) would not be taxable. On the other hand, if you
are not filling the capacity of a contractor, but rather are providing design
services (e.g. suggesting fabrics, buying furniture, etc.) and you make, sell,
and install draperies not permanently attached to the realty, then tax is due
on the total charge for labor and materials.

A separately stated design fee for your professional services is not taxable
whether working on residential or nonresidential property.

Local tax is due based on the location of the jobsite on a cost-plus contract
for residential remodeling services. City sales tax is due based on your place
of business on the sale and installation of tangible personal property. If your
customer is located within the CITY MTA, the MTA sales tax is also due. Local
county, special purpose district, or MTA use tax may be due on the sale and
installation if your client is located in a taxing jurisdiction that has
adopted any of those taxes. Please refer to the enclosed Sales Tax Bulletin.

This opinion is based on the facts presented. If there are any additional or
different facts, the opinion may change.

If you have any questions or need additional information, you may call toll
free 1-800-252-5555, ext. 50037 or the regular Austin number is 512-475-0037.
You also may write to Tax Administration Division.

Sincerely,

Lindsey Osborne
Tax Administration Division