I charge customers one lump sum for delivering and setting up furniture in their home -- can I treat that as exempt installation and delivery, or is it taxable because I combined two charges into one?

Plain-English summary

A home furnishings retailer with 12 Virginia stores and an online platform offered customers delivery of the furniture it sold, invoicing a single lump-sum fee for delivery and setup without charging sales or use tax on it. An audit found the combined charge taxable, and the retailer appealed on two separate grounds -- both of which failed.

Assembling furniture at a customer's home isn't the same as "installing" it. Virginia Code § 58.1-609.5 2 exempts a separately stated charge for "labor or services rendered in installing... property sold." The retailer argued that placing furniture in a customer's home and making it ready to use qualified as installation. The Department disagreed: under P.D. 86-186, "installation" is labor performed after a product is already complete, to fix it in place for the customer -- and under P.D. 94-351, ASSEMBLY or erection work needed to make a product functional (there, storage racks) is a separate, taxable category that happens before installation, not the same thing as it. The retailer's own furniture-and-set-up service was assembly -- putting the pieces together and positioning them for use -- not installation of an already-complete product. The retailer pointed to two precedents in its favor, P.D. 86-186 and P.D. 98-12, but the Department found both involved at least some genuine installation work on the actual facts; here, the charges were purely for assembly, so those precedents didn't apply. Absent a statutory exemption, assembly charges bundled into a sale of tangible personal property are taxable.

Even if part of the charge could have been exempt, it wasn't SEPARATELY stated. The retailer separately argued that combining two potentially nontaxable items (delivery and installation) into one lump sum shouldn't matter, since both would be exempt on their own. The Department rejected this too: Virginia's transportation-charge exemption (Va. Code § 58.1-609.5 3; 23 VAC 10-210-6000 A) applies only when delivery charges are separately stated on the invoice -- if not separately stated, they become part of the taxable sales price. Citing its own precedent (P.D. 91-223) and the Virginia Supreme Court's plain-meaning approach to exemption statutes (Shelor Motor Co. v. Miller, 261 Va. 473 (2001)), the Department held that when a dealer doesn't segregate a nontaxable charge from a taxable one, the entire combined charge is taxable -- even if it's separately stated from the price of the furniture itself. Since the retailer's actual charge was assembly (a taxable service in connection with a sale), not exempt installation, bundling it with delivery made the whole combined charge taxable regardless.

Result: assessment upheld, already paid. Because the disputed assessment had already been paid in full by the time of this ruling, no further action was required.

What this means for you

Furniture, appliance, or similar retailers offering delivery-and-setup service

Know the legal difference: assembly (putting together, positioning, making a product ready for its first use) is a TAXABLE service when it's part of a sale, while installation (fixing an already-complete product in place, typically after the product itself is done) can be exempt labor if separately stated. Setting up furniture in someone's living room is assembly, not installation, under this ruling.

Any business bundling a potentially exempt charge (delivery, installation) with a taxable one

Separately state each charge on the invoice. Even a charge that would qualify for an exemption on its own becomes fully taxable if it's combined into a single line with a taxable charge -- Virginia's exemption statutes are read literally, and "separately stated" means exactly that.

Businesses relying on prior Department rulings to argue their labor is exempt "installation"

Check whether the precedent you're citing actually involved installation-type facts, not just the word "installation" in its subject line. The Department looks at what the labor actually accomplishes on your specific facts, not just how a past ruling with similar language came out.

Common questions

Q: I deliver and set up furniture for customers -- is that exempt installation labor?
A: Generally no, if the work is assembling/positioning a product to make it ready for first use. Virginia treats that as taxable assembly, distinct from installation (labor performed on an already-complete product to fix it in place), which can be exempt if separately stated.

Q: If my delivery charge would be exempt on its own, does it matter that I combined it with another charge on one invoice line?
A: Yes. Under Virginia law, a nontaxable charge that isn't separately stated from a taxable charge becomes part of the taxable sales price -- combining two charges, even two that might individually qualify, can defeat the exemption if the invoice doesn't segregate them.

Q: Does it matter whether my delivery and installation charges are billed separately from the price of the furniture itself?
A: That helps, but it's not the whole test. The charges also need to be separately stated FROM EACH OTHER if one is taxable (like assembly) and one might be exempt (like delivery) -- otherwise the combined charge is taxable.

Citations and references

Statutes and regulations:

• Va. Code § 58.1-602 -- defines "sales price," including services that are part of the sale
• Va. Code § 58.1-609.5 2 and 3 -- exemptions for separately stated installation labor and separately stated transportation charges
• 23 VAC 10-210-4040 -- services generally exempt, but taxable when connected to a sale of tangible personal property
• 23 VAC 10-210-6000 A -- delivery charges exempt only if separately stated on the invoice

Prior rulings and case law the Department relied on (described here, not linked): P.D. 86-186 (9/18/1986) (installation is labor rendered after a product is complete, to install it for the customer); P.D. 94-351 (11/22/1994) (assembly/erection of storage racks before installation is taxable, distinct from installation itself); P.D. 98-12 (1/20/1998) (contrasts assembly fees and installation charges -- also the source, in this corpus's companion P.D. 24-107, of the "install means to set up or fix in position for use or service" test); P.D. 91-223 (9/23/1991) (a combined taxable/nontaxable charge is fully taxable if not segregated); Shelor Motor Co. v. Miller, 261 Va. 473, 479 (2001) (exemption statutes applied by their plain language).

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 24-99

Original ruling text

October 3, 2024

RE: § 58.1-1821 Application: Retail Sales and Use Tax

Dear *:

This is in response to letters submitted on behalf of * (the “Taxpayer”) in which you seek correction of the retail sales and use tax assessments issued for the period December 2018 through November 2021. I apologize for the delay in responding to your request.

FACTS

The Taxpayer sells home furnishings in Virginia and throughout the United States. In Virginia, the Taxpayer operated 12 retail stores. In addition, the Taxpayer sells furniture to Virginia customers through an online platform. As a service to its customers, the Taxpayer offers delivery of the furnishings it sells. A lump sum fee was invoiced for delivery and installation for which sales or use tax was not charged.

Under audit, the combined delivery and installation charges were listed as exceptions because they were a taxable part of the sales price of the furniture. The auditor also assessed the use tax on untaxed purchases. As a result, the Department issued an assessment for sales and use tax and interest. The Taxpayer filed an application for correction contending that the sales tax assessed on the delivery and installation fees are non-taxable services.

DETERMINATION

Virginia Code § 58.1-602 provides the definition of “sales price” as it relates to the retail sales and use tax and provides, in part, the following:

“Sales price” means the total amount for which tangible personal property or services are sold, including any services that are a part of the sale, valued in money, whether paid in money or otherwise, and includes any amount for which credit is given to the purchaser, consumer, or lessee by the dealer, without any deduction therefrom on account of the cost of the property sold, the cost of materials used, labor or service costs, losses or any other expenses whatsoever.

Virginia Code § 58.1-609.5 sets out exemptions from the sales and use tax in subsections 2 and 3 for “an amount separately stated for labor or services rendered in installing…property sold or rented” and “transportation charges” respectively.

The Taxpayer asserts that the separately stated charge for delivery is tax exempt although it’s combined with another service. In this instance, the issue is whether the Taxpayer’s lump sum invoicing of the delivery and installation charges qualify for the statutory exemptions, or if such charges should be considered as assembly or set-up charges and thus taxable.

Assembly v. Installation Charges

In conjunction with delivery, the Taxpayer will assemble and place furniture in a customer’s home. The Taxpayer contends that placing furniture in a customer’s home and making it ready for use is installation included in the delivery charge.

Title 23 of the Virginia Administrative Code (VAC) 10-210-4040 C 2 provides that separately stated installation charges are excluded from sales price and, therefore, are not subject to the tax. In Public Document (P.D.) 86-186 (9/18/1986), the Department opined that installation is labor rendered after the product is complete in order to install it for the customer. In P.D. 94-351 (11/22/1994), the Department made a distinction between taxable assembly labor and exempt installation labor. In this ruling, the assembly and erection of storage racks occurred prior to installation and were, therefore, included in the sales price subject to tax. Based on this reasoning, charges for assembling tangible personal property sold are not part of installation and, therefore, are not excluded from the sales price. Instead, assembly and fabrication charges are for services in connection with the sale and are subject to tax.

To support its claim that the charges should be tax exempt, the Taxpayer references two public documents, P.D. 86-186, which separated installation labor from taxable services, and P.D. 98-12 (1/20/1998), which contrasts assembly fees and installation charges. In each of these cases, at least a portion of the services provided were indicative of installation charges. Contrarily, the facts presented here indicate the charges were for assembly in order to make the property fully functional rather then installation. Absent a statutory exemption, assembly charges included in the sale of tangible personal property are subject to the tax.

Lump Sum Charge

The Taxpayer argues that two tax exempt charges combined are still tax exempt even if not separately stated on an invoice. Based on this argument, the Taxpayer claims that their delivery should be treated as non-taxable delivery and installation services.

Title 23 VAC 10-210-6000 A states, in part:

The tax does not apply to transportation or delivery charges added to a taxable sale provided such transportation charges are separately stated on the invoice to the customer. If the transportation or delivery charges are not separately stated on the invoice, they will become part of the sales price of the property and will be subject to tax.

When a dealer does not segregate a nontaxable charge from a taxable charge, the single combined charge is taxable even if separately stated from the price for the tangible personal property. See P.D. 91-223 (9/23/1991).

In Shelor Motor Co. v. Miller , 261 Va. 473, 479 (2001), the Court stated, "[w]hen the language of a statute is plain and unambiguous, we are bound by the plain meaning of that language." Based on the plain language of the exemption statute, for charges to be exempt they must be separately stated.

Title 23 VAC 10-210-4040 A sets out the Department’s policy with respect to the retail sales tax application to services as follows:

Charges for services generally are exempt from the retail sales and use tax. However, services provided in connection with sales of tangible personal property are taxable.

Transactions involving both the sale of tangible personal property and the provision of services are generally either taxable or exempt on the full amount charged regardless of whether the charges for the service and property components are separately stated. Applying these principles to the Taxpayer’s transactions, the single charge for delivery and assembly constitutes services provided in connection with the sale of home furnishings and are taxable as part of the sales price.

Accordingly, the auditor properly assessed the sales tax on the combined charges at issue and the assessments are upheld. Because the disputed assessments have been paid in full, no further action is required.

The Code of Virginia sections and regulations cited are available online at law.lis.virginia.gov. The public documents cited are available at tax.virginia.gov in the Laws, Rules, & Decisions section of the Department’s website. If you have any questions regarding this determination, you may contact * in the Office of Tax Policy, Appeals and Rulings, at or **.

Sincerely,

James J. Alex

Tax Commissioner

Commonwealth of Virginia

AR/4552.F

Related Documents

86-186

91-223

94-351

98-12