Rulings of the Tax Commissioner

December 28, 2018

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

Dear *****:

This is in response to your letter submitted on behalf of ***** (the “Taxpayer”) in which you seek correction of the retail sales and use tax assessments issued for the period March 2013 through February 2016.  I apologize for the delay in responding to your appeal.

FACTS

The Taxpayer is in the business of providing home staging services for its customers.  The Taxpayer primarily provides design and consulting services (the “design services”), and as a part of these services, the Taxpayer offers to rent furniture to its customers to better present the customers’ homes to potential buyers.  The auditor assessed sales tax on the charges for design services in instances where the charge for the design services and for the rental of furniture were included on the same invoice, relying on the definition of “sales price” in Virginia Code § 58.1-602.  The auditor determined that the tax should have been charged to the customer on the full selling price inclusive of any charges for services rendered in connection with the rental of furniture.

The Taxpayer contends that its design services are exempt from sales tax in accordance with the plain reading of Title 23 of the Virginia Administrative Code (VAC) 10-210-770.  The Taxpayer requests that the assessment related to these transactions be abated in full.

DETERMINATION

Interior Design Services

Relying on Title 23 VAC 10-210-770, the Taxpayer maintains that the Virginia retail sales and use tax does not apply to its design services.  The Taxpayer further contends that the charges for its services are stated separately from the charges for furniture rentals made to its customers and that there is no lump sum charge.

Title 23 VAC 10-210-770 provides that:

The tax does not apply to an interior decorator's charges for services. When a decorator goes beyond the rendition of services and sells tangible personal property, the decorator must register as a dealer and collect and pay the tax on retail sales. When a decorator makes a lump sum charge for services and furnishes tangible personal property, the tax applies to the total charge, unless the charge for services is billed separately from the tangible personal property. 

In this instance, the Taxpayer’s charges for its design services are not subject to the tax as provided in Title 23 VAC 10-210-770.  However, in instances where the Taxpayer goes beyond the provision of services and rents furniture to its customer, and the charges for such rentals are included on the invoices with the charges for the design services, the entire charge to the customer is subject to the tax.  The Taxpayer’s billing of services and furniture rental on the invoice is a lump sum charge as considered in the Title 23 VAC 10-210-770.  The regulation requires that charges for interior design services be billed separately from the charges for furniture rentals in order for the sale of services to be made exempt of the tax.

Accordingly, the assessment of the tax in the audit is correct as issued.  Going forward, the Taxpayer should issue a separate bill for design services and a separate bill for furniture rentals when a customer contracts with the Taxpayer for design services and furniture rentals.  If the Taxpayer includes the charges for the design services on the same bill with the charges for furniture rentals, the sales tax will apply to the total charge to the customer.

The determination rendered in Public Document 96-52 (4/19/96) supports this determination.  In P.D. 96-52, the Tax Commissioner ruled that in instances where an interior designer goes beyond the rendition of services and sells tangible personal property, the invoicing of these services must be separate in billing and not merely separate on the same invoice.  The taxpayer’s billing of services and tangible personal property was deemed a lump sum charge because the charges were separately stated on the invoices and not separately billed as required by the regulation.  Accordingly, it was determined that the taxpayer’s design services were properly included in the assessment.  The determination issued in P.D. 09-165 (10/23/09) is based upon the determination in P.D. 96-52 and likewise applies in this instance.

Public Documents 97-66 (2/14/97) and 96-88 (5/14/96)

The Taxpayer questions the use of these public documents by the auditor in assessing the tax in the audit.  The Taxpayer maintains that neither of these rulings deals with circumstances similar to its business and that they are distinguishable from the facts in this case.

In the audit, the auditor referenced the Virginia Code § 58.1-602 definition of sales price and Title 23 VAC 10-210-4000.[1]  Public Documents 97-66 and 96-88 were also relied upon by the auditor because they discuss the application of the tax to the sales price charged when services are sold in connection with the sale of tangible personal property.  Title 23 VAC 10-210-770 governs in this instance, and clearly states how the sales tax should be applied to the transactions at issue.

CONCLUSION

Based upon this determination, the assessments are correct.  Revised bills, with interest accrued to date, will be mailed shortly to the Taxpayer.  No further interest will accrue provided the outstanding assessments are paid within 30 days from the date of the bills.  The Taxpayer should remit payment to: Virginia Department of Taxation, 600 E. Main Street, 15^th Floor, Richmond, Virginia 23219, Attn: *****.  If you have any questions concerning payment of the assessments, you may contact ***** at *****.

The Code of Virginia sections, regulations and public documents cited are available on-line at www.tax.virginia.gov in the Laws, Rules and Decisions section of the Department’s web site.  If you have any questions about this determination, you may contact ***** in the Department’s Office of Tax Policy, Appeals and Rulings, at *****.

Sincerely,

Craig M. Burns
Tax Commissioner

AR/1073P