88-131 | Virginia Tax

Tax Type

Retail Sales and Use Tax

Description

Interior decorators purchasing fees

Topic

Taxability of Persons and Transactions

Date Issued

06-13-1988

June 13, 1988

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

Dear***************

This is in reply to your letter of August 25, 1987 in which you make application for correction of the sales and use tax assessment that resulted from the recent audit of your client,********* I apologize for the delay in responding to your letter and I hope that the delay has not caused you or your client any inconvenience.

FACTS

************* (Taxpayer) is an interior design company, which provides design and consulting services to its clients. Based upon the information gathered during the course of the recent audit, the taxpayer collects three separate types of fees from its clients: (1) design fees, (2) consulting fees, and (3) purchasing fees. The design fees and the consulting fees are charged to the taxpayer's clients regardless of whether the taxpayer sells tangible personal property to the client. The purchasing fee is only imposed when the taxpayer sells tangible personal property to its clients.

The "purchasing fee" is based upon the cost of the property purchased. The department's auditor determined that these "purchasing fees" were part of the purchase price of the property sold by the taxpayer to its client and assessed tax on these fees.

You contest this determination made by the department and contend that based upon Virginia Regulation 630-10-50 and upon the department's ruling dated February 14, 1983 to another interior design company these charges should be exempt as charges for nontaxable services.

DETERMINATION

Virginia Regulation 630-10-50 sets forth the application of the sales and use tax to interior decorators.

- 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.

As set forth in the above regulation, the tax does not apply to the charges made by an interior decorator which are solely for design and consulting services. These otherwise exempt services would only be taxable if the interior decorator (1) goes beyond the rendition of services and sells tangible personal property and (2) makes a lump sum charge for both of these otherwise exempt services and for tangible personal property. The charge for these services will remain exempt as long as the charge for services is billed separately from the tangible personal property. In this case, the charges designated as design fees and consulting fees are fees for services not connected with the sale of tangible personal property; therefore, these charges are not taxable.

The "purchasing fee" is directly related to the sale of tangible personal property by the taxpayer. It is only imposed when the taxpayer sells tangible personal property to its clients and the amount of the charge is a percentage of the price of the property sold.

"Sales price", upon which the sales tax is based, is defined under Virginia Code §58.1-602.17 as, "the total amount for which tangible personal property or services are sold, including any services that are a part of the sale..." (Emphasis added.) As the purchasing fee is directly related to the sale of tangible personal property by the taxpayer, it is included in the taxable "sales price" of the property.

In the February 14, 1983 ruling that you cite, the department held that the company was not making sales to its clients. This determination was based upon the fact that the company was acting as the agent for its clients. The determination that an agency relationship existed was based upon the fact that the company's credit was never bound in any of the contested transactions. Furthermore, it was expressly stated on the face of the purchase order forms that the company was acting as agent for its clients in the purchase transactions.

In this case, the taxpayer has not demonstrated that such an agency relationship existed. In fact, the contract between the taxpayer and its client specifically states in Provision 13:

- Representative [Taxpayer] shall be deemed to be an independent contractor hereunder, and shall not be considered or permitted to be an agent, servant, joint venture, or partner of Purchaser [Taxpayer's customer]. (Emphasis added.)

Furthermore, the department's initial determination that the taxpayer was going beyond the rendition of services and was making sales of tangible personal property to its clients is supported by the following language found in the same contract.

- WHEREAS, Purchaser desires to appoint Representative as its exclusive purchasing representative for the purchase of certain furniture, furnishings, and equipment for resale to Purchaser ... (Emphasis added.)

This is also supported by the fact that the taxpayer collected tax on sales of tangible personal property to its Virginia customer. In collecting the tax, the taxpayer merely failed to include its purchasing fee in the "sales price" of the property sold.

Based upon the facts presented, I find that the "purchasing fees n the taxpayer imposed on its clients were properly included in the taxable "sales price" of the property sold to Virginia customers. Therefore, I find no basis to adjust the audit in question.

This determination has been made without a hearing. If you feel that there are additional facts that should be considered by the department and you desire to present such facts at a hearing, please contact the department's Tax Policy Division within the next 30 days.

Sincerely,

W. H. Forst
Tax Commissioner

Rulings of the Tax Commissioner