Is an interior decorator's design fee, purchasing fee, administrative charge, freight/move-in charge, or consultation fee taxable under Texas sales and use tax?

Plain-English summary

This letter responds to an interior decorator who asked the Texas Comptroller's Tax Policy Division how sales tax applies to seven specific ways decorators typically bill their clients. The Comptroller (Kevin Koller, Tax Policy Division) addressed each one:

1. Design fee included in a lump-sum charge. A separately stated charge for interior design services is not taxable. But if the design fee is rolled into a lump-sum bill for the sale of tangible personal property, the fee becomes taxable. A design fee cannot be billed as a percentage of the item's cost without being treated as part of the taxable sales price. A design fee bundled into a charge for a taxable service is taxable if the taxable-service portion is more than 5% of the total charge (citing 34 Tex. Admin. Code Rule 3.357(b)(9), on remodeling of commercial real property).
2. Purchasing fees billed as a percentage of cost. A purchasing fee calculated as a percentage of a taxable item's cost (property or service) is treated as a mark-up and is taxable.
3. Administrative charges added to consultants' bills. These are taxable when tied to charges for taxable items.
4. Administrative charges added to reimbursable expenses. A reimbursable expense arises when the decorator pays tax to a furniture or supply vendor and passes that charge to the client; the decorator must separately state the item and its tax on the invoice to show it's a pure reimbursement. An administrative charge added on top is taxable when it's a percentage of the taxable item's sale price, but not taxable when it relates to nontaxable design services.
5. Freight, move-in, and storage. Sales tax applies to freight and move-in fees tied to sales of taxable items. A decorator does not have to collect tax on professional fees to arrange furniture, and isn't responsible for tax on freight or move-in charges for items it doesn't sell (reimbursed items aren't considered "sold" by the decorator). Storage fees are not taxable.
6. Merchandise sold to clients. The sale of tangible personal property or taxable services (such as remodeling of commercial real property), including any mark-up, is taxable.
7. Consultation fee alone. A stand-alone consulting fee for interior design work is not taxable.

The Comptroller noted the opinion is based on the facts presented and could change if the facts differ.

What this means for you

Interior designers and decorators

How you bill matters as much as what you do. Keep design fees, consulting fees, and any administrative or reimbursement charges separately stated from charges for furniture, materials, or other taxable property — bundling a design fee into a lump-sum sale of tangible personal property, or basing it on a percentage of the item's cost, turns the whole fee taxable. A stand-alone consultation fee, or a genuinely separate design fee, stays non-taxable.

Decorators handling reimbursed vendor charges

If you pay tax to a furniture or supply vendor and pass that cost through to your client, separately state both the item and the tax on your invoice so it's clearly a reimbursement, not a sale. An administrative charge layered on top of that reimbursement is taxable only if it's calculated as a percentage of the taxable item's price — not if it relates to your (nontaxable) design services.

Decorators billing freight, move-in, or storage

You owe tax on freight and move-in charges only for items you actually sell as taxable property. You're not responsible for collecting tax on freight/move-in for items you don't sell, and storage fees are never taxable regardless of what's stored.

Accountants and tax professionals advising decorators

Watch for percentage-based fee structures — a purchasing fee or design fee calculated as a percentage of a taxable item's cost is treated as a taxable mark-up or bundled sales price, even if the underlying service (design, consulting) would be non-taxable if billed as a flat, separately stated fee.

Common questions

Q: Is a separately stated interior design fee taxable?
A: No. A separately stated charge for interior design services is not taxable.

Q: What if the design fee is included in a lump-sum bill along with furniture or other items?
A: Then it becomes taxable, because it's no longer separately stated from the sale of taxable tangible personal property.

Q: Is a purchasing fee taxable if it's a flat charge rather than a percentage?
A: The letter addresses purchasing fees billed as a percentage of the taxable item's cost, which it treats as a taxable mark-up; it does not separately address a flat purchasing fee.

Q: Are administrative charges on reimbursed vendor expenses taxable?
A: Only if the administrative charge is a percentage of the taxable item's sale price. If the administrative charge relates to nontaxable interior design services, it is not taxable.

Q: Do decorators have to collect sales tax on freight or move-in charges?
A: Only for items the decorator itself sells as taxable property. Decorators are not responsible for collecting tax on freight or move-in charges for items they do not sell, and storage fees are not taxable at all.

Q: Is a stand-alone consultation fee for design work taxable?
A: No, a consulting fee for interior design work alone is not taxable.

Citations and references

Regulations:

• 34 Tex. Admin. Code Rule 3.357(b)(9) (remodeling of commercial real property)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9508403L

Original ruling text

August 17, 1995

Dear **:

Thank you for your letter of August 8, 1995, concerning the taxability of
various services performed by interior decorators.

You requested that we address the taxability of the following transactions;

1. Design Services included in cost of Fee.

A separately stated charge for interior design services is not taxable. A fee
for design services that is included in a lump-sum billing for the sale of
tangible personal property is taxable. The design fee cannot be a percentage of
the item's cost without being seen as part of the sales price (see Question 2).
A fee for design service that is included in the charge for the performance of
a taxable service will be taxable if the portion relating to taxable services
represents more than 5% of the total charge. See enclosed Rule 3.357 Section
(b)(9), concerning remodeling of commercial real property.

2. Purchasing Fees charged as a percentage of cost of Fee.

A purchasing fee that is a percentage of the taxable item's (either tangible
personal property or taxable service) cost will be considered a mark-up and
will be taxable.

3. Administrative charges added to consultants' bills.

Administrative charges are taxable if made in connection with charges for
taxable items.

4. Administrative charges added to reimbursable expenses.

A reimbursable expense occurs when the interior designer pays tax to the
furniture or supply vendor and passes the charge on to their customer. The
decorator must separately state the item and the associated tax on their
invoice to show that it is just a reimbursement. An administrative charge added
to a reimbursable expense is taxable when it is a percentage of the taxable
items sale price. The administrative charge is not taxable when it relates to
nontaxable interior design services.

5. Sales tax on freight, move-in and storage.

Sales tax is due on freight and move-in fees associated with sales of taxable
items. An interior decorator will not need to collect tax on professional fees
to arrange the furniture. An interior decorator is not responsible for
collecting sales tax on freight or move-in charges for items that they do not
sell. Reimbursed items are not considered "sold" by the interior decorator.
Storage fees are not taxable.

6. Merchandise sold to clients (cost and mark-up).

The sale of tangible personal property or taxable services (i.e.; remodeling of
commercial real property) including any mark-up is taxable.

7. Consultation fee alone.

A consulting fee for interior design work is not taxable.

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

You may call me toll free at 1-800-531-5441, ext. 5-0613. The direct line is
512/475-0613. You may also write to Tax Policy Division, Comptroller of Public
Accounts.

Sincerely,

Kevin Koller
Tax Policy Division