Image Source: Festoon House Lighting
In Florida, for many interior designers, the bulk of the services they provide relate to designing the interior and exterior decorative scheme and advising clients and recommending colors, paints, wallpaper, fabrics, brands, sources of supply, etc. In these cases, fees earned from such services are generally exempt from the Florida Department of Revenue’s (“DOR”) sales tax and surtax requirements as a professional or personal service charge. However, in many cases, the interior designer also participates in the actual sale of tangible personal property, such as furniture, fixtures, and equipment (commonly referred to as “FF&E”). Unfortunately for the unwary interior designer, if they are involved in the sale of any FF&E to their client, the total fee they charge for their services, not just the amount of the FF&E, may be taxable by the DOR.
Rule 12A-1.001(2)(a) of the Florida Administrative Code provides specific exemptions from taxation for service transactions related interior decorators:
1. An interior decorator’s so-called fee is taxable as a part of the selling price under section 212.02(16), F.S., or as a part of the cost price under section 212.02(4), F.S., and cannot be exempted as a professional or personal service charge when the transaction involves the sale of tangible personal property. This is true when the so-called fee is paid in the form of a trade discount, as is the case when a supplier grants the decorator a trade discount and the decorator in turn bills the client for the full list price. The decorator fee is also taxable when it appears as an amount added to the decorator’s cost when billed to the client for tangible personal property on a cost plus basis.
2. If the decorator’s fee is solely for designing the interior and exterior decorative scheme or for advising his clients and recommending colors, paints, wallpaper, fabrics, brands, sources of supply, etc., and there is no sale of tangible personal property involved, then such fee would be exempt as a professional or personal service transaction.
3. In some instances, the decorator may receive a fixed sum, which is not in any way contingent upon the sale of tangible personal property, as a so-called decorator fee. Then, in other completely unrelated transactions, he may sell tangible personal property to the same client. In such cases the decorator’s fee cannot be considered as a part of the selling price of the property sold because there is no connection between the transactions.
4. If the decorator’s client reimburses the decorator for the payroll cost of personnel on the decorator’s payroll assigned to a specific project, the duties performed by such employees will determine whether or not this item is taxable. For example, if these employees were engaged in painting murals on walls, etc., the charge made for their services is exempt, whereas, if these employees fabricate tangible personal property such as making bedspreads or draperies then the charge for their labor is taxable.
Given the above, in order to minimize tax exposure when an interior designer’s project includes the purchase of FF&E, best practices would be to:
- Set up an operating company that will contract for, and exclusively provide, interior design services (i.e. Interior Designer Services, LLC). This company should directly receive payment for such services, which generally are exempt from taxation by the DOR.
- Set up a separate subsidiary company that will contract for, and exclusively provide, any and all services related to the actual purchase of FF&E. This company should directly receive payment for such services. However, this payment is generally subject to taxation by the DOR, so apply for a resale tax certificate with the DOR, invoice the client for the cost of FF&E and applicable sales tax, and remit such tax to the DOR.
Contact us today if you would like to discuss any business or legal matters pertaining to interior design services!
*DiSchino & Schamy PLLC is not a tax firm. This information is being provided for educational purposes only and does not constitute legal advice. Any interior designer should consult with a tax specialist regarding its potential tax liability.*