Document Number
25-21
Tax Type
Retail Sales and Use Tax
Description
Exemption: Services - Interior Decorators;
Sales Price - Markups
Topic
Appeals
Date Issued
02-13-2025

February 13, 2025

Re: § 58.1-1821 Application: Retail Sales and Use
    
Dear *****:

This will respond to your letter in which you seek correction of the sales and use tax assessment issued to ***** (the “Taxpayer”) for the period October 2015 through February 2020. 

FACTS

An audit was conducted on the books and records of the Taxpayer, a bank, for the period at issue. The auditor found that the Taxpayer had failed to pay or remit tax on fixed assets and general expense purchases. The Taxpayer paid the assessment and filed an application for correction contending one transaction with an interior designer held in the audit included separately stated markup and labor.

DETERMINATION

Service Exemption

Virginia Code § 58.1-603 imposes retail sales tax on “every person who engages in the business of selling at retail or distributing tangible personal property in this Commonwealth…” A retail sale is defined, in part, in Virginia Code § 58.1-602 as “a sale to any person for any purpose other than for resale in the form of tangible personal property or services under this chapter…”

Conversely, charges for transactions resulting solely from the provision of services are generally exempt from the retail sales and use tax. Services provided in connection with sales of tangible personal property are included in the sales price and are, therefore, taxable unless specifically exempt by statute. See Virginia Code § 58.1-602, Virginia Code § 58.1-609.5 and Title 23 of the Virginia Administrative Code (VAC) 10-210-4040. 

In some transactions involving both the sale of tangible personal property and the provision of services, the Department has recognized that the full amount charged may be exempt regardless of whether the charges for the service and property components are separately stated. As explained in Title 23 VAC 10-210-4040 D, the “true object” test is used to determine the taxability of these transactions.

Interior Design and Decorator Services

Under Title 23 of the Virginia Administrative Code (VAC) 10-210-770, charges for design and decorator services are not subject to the tax. However, 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. See Public Document (P.D.) 09-165 (10/23/2009). The invoice provided shows that the designer separately stated the labor charges.

Sales Markups

The Virginia retail sales and use tax is imposed on the “sales price” of tangible personal property. Virginia Code § 58.1-602 defines “sales price” as “the total amount for which tangible personal property or services are sold, including any services that are a part of the sale ... without any deduction ... on account of ... labor or service costs ...“ As so defined, sales price includes any amount charged as a markup for overhead expenses and other costs and profit in connection with the sale of tangible personal property. See P.D. 21-65 (5/25/2021). 

The invoice provided by the Taxpayer lists a markup between the tangible personal property provided and the designer’s service fee. A check of the markup amount indicates that it was applied solely to the items sold in the transaction. As such, the markup charged by the designer for furnishings and decor that she provided to the Taxpayer was subject to sales and use tax. 

CONCLUSION 

In accordance with this determination, the case will be returned to the audit staff to remove the charge for labor shown on the interior decorator’s invoice. A refund will be issued along with any refund interest as applicable. 

The Code of Virginia sections and regulation cited are available online at law.lis.virginia.gov. The public documents and tax bulletin 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 and Legal Affairs, Tax Adjudication and Resolution Division, at ***** or *****@tax.virginia.gov.

Sincerely,

 

James J. Alex
Tax Commissioner
Commonwealth of Virginia

                    

AR/3834.B
 

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Last Updated 03/25/2025 13:27