January 31, 2020
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 request reconsideration of the original determination issued to the Taxpayer on December 28, 2018. The original determination addressed the Taxpayer’s appeal of the retail sales and use tax assessments issued for the period March 2013 through February 2016.
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. The Taxpayer contested the assessment, contending that its design services were exempt from the sales tax. In accordance with Title 23 Virginia Administrative Code (VAC) 10-210-770, the assessment was upheld in the original determination. It was determined that the assessment was correct because the Taxpayer’s billing of services and furniture rental on the invoice was a lump sum charge as considered in the regulation.
The Taxpayer maintains that the original determination distorts the intent of Title 23 VAC 10-210-770 and promotes form over substance because the sole justification for imposing the tax is the interpretation of billed separately in the determination. Relying on Public Document (P.D.) 12-217 (12/21/12) and P.D. 14-14 (1/30/14), the Taxpayer further contends that the interpretation of billed separately in the prior determination is inconsistent with prior Department rulings. Additionally, the Taxpayer states that the original determination incorrectly states the ruling issued in P.D. 96-52 regarding the Tax Commissioner’s interpretation of billed separately. The Taxpayer contends that it is entitled to relief as a matter of law because its design services are not connected to its furniture rentals, and the charges for the design services and furniture rentals are separately stated. The Taxpayer further states that it deserves relief because it fully cooperated during the processing of the audit and the appeal, and files and remits its taxes on time.
DETERMINATION
After further review of the facts at issue, Title 23 of the Virginia Administrative Code 10-210-770 and prior Department rulings, I have reconsidered the determination issued in the original determination letter.
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.
Title 23 VAC 10-210-770 governs the application of the sales tax on the sales of services and tangible personal property by interior decorators. As provided by the regulation, the Taxpayer’s charges for its design services are not subject to the tax. The regulation also sets forth the Department’s policy that when an interior decorator makes a lump sum charge for the sale of both services and tangible personal property, the total charge is subject to the tax. If the charges for services are billed separately from the tangible personal property, the sales tax only applies to the charge for the tangible personal property.
In this instance, the Taxpayer sold its design services and rented furniture to its customers. As considered in the regulation, the charges for the rental of furniture are billed separately on the Taxpayer’s invoices from the charges for the design services. The Taxpayer does not charge a lump sum for the design services and furniture rental on invoices issued to its customers. As such, the Taxpayer properly complied as a registered dealer and charged and collected the sales tax on the separately billed charges for the rental of the furniture during the audit period. Accordingly, the charges held taxable in the audit will be removed.
In the prior determination, Public Documents 96-52 and 09-165 (10/23/09) were used to support the determination that the sales tax applied to the rental of furniture transactions at issue in the audit. In these public documents, 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. It is not the Department’s intent that Title 23 VAC 10-210-770 would require interior decorators to issue separate bills when selling its services and tangible personal property to its customers. Rather, the regulation provides that interior decorators should separately state such charges on the invoices, and charge the sales tax on the sales of tangible personal property. Should the interior decorator charge a lump sum on the same invoice for the services and tangible personal property, the entire charge would be subject to the tax.
Based upon further review of these public documents, I find that these rulings do not clearly address how the regulation should be applied when interior decorators sell both design services and tangible personal property, and the charges for such sales are stated on the same invoice. Accordingly, I find these public documents do not apply to the transactions at issue and should not have been relied upon in the audit and the original determination to support assessing sales tax on the transactions at issue.
This determination reverses the decision set forth in the original determination issued to the Taxpayer in P.D. 18-216 (12/28/18).
CONCLUSION
Based upon this determination, the assessment of tax on charges for the Taxpayer’s design services will be removed from the audit. Once the adjustments are made to the audit, revised bills, with interest accrued to date, will be mailed to the Taxpayer. No further interest will accrue provided the outstanding assessment is paid within 30 days from the date of the bills. The Taxpayer should remit payment to: Virginia Department of Taxation, 600 E. Main Street, 15th Floor, Richmond, Virginia 23219, Attn: *****. If you have any questions regarding payment of the assessment, you may contact ***** at *****.
The regulation 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 response, you may contact ***** in the Department’s Office of Tax Policy, Appeals and Rulings, at *****.
Sincerely,
Craig M. Burns
Tax Commissioner
AR/1957P