Sales Use and Tax TAA 19A-006 Interior Decorating

QUESTION: Should the Taxpayer should charge sales tax on the Mover’s services and associated markup, when billing the Client?

ANSWER: Yes. The Taxpayer should charge sales tax on the Mover’s services and associated markup, when billing the Client. The charges for storage and handling imposed by the Mover, that are marked up and passed on to the Client are part of the sales price subject to sales tax.

QUESTION: Are the 10-35% markup and charges for reimbursable expresses considered to be part of the sales price of the materials sold by the Taxpayer to the Client?

ANSWER: Yes. The mark-up fees and charges for reimbursable expenses are part of the sales price of tangible personal property and are subject to tax under sections 212.02(16) and 212.06(1)(a), F.S.

QUESTION: Should the 10-35% markup is to be included when determining the $5,000 discretionary sales surtax limitation.

ANSWER: The 10-35% markup is considered to be part of the sales amount of the materials sold to the Client and should be included when determining the $5,000 discretionary sales surtax limitation in cases where a single sale transaction is documented by a charge ticket, sales slip, invoice, or other tangible evidence.

QUESTION: Are the charges for delivery, installation, and freight imposed by XXXX that are passed on to the Client are to be included when determining the $5,000 discretionary sales surtax limitation when billed separately from the sale of tangible personal property.

ANSWER: No. The charges for delivery, installation, and freight imposed by XXXX that are passed on to the Client are not to be included when determining the $5,000 discretionary sales surtax limitation of the tangible items sold to the Client. As provided, section 212.054(2)(b), F.S., requires that a single sale transaction must be documented by a charge ticket, sales slip, invoice, or other tangible evidence in order for the $5,000 limitation to apply. Based on the information provided, the charges for delivery, installation, and freight were not billed as a single sale with the tangible items. The charges are subject to the full amount of discretionary sales surtax.

March 8, 2019,

XX

Subject: Technical Assistance Advisement 19A-006 
Sections 212.02, 212.05, 212.054, and 212.055, Florida Statutes (F.S.) 
Rules 12A-1.001, 12A-1.006, and 12A-15.004, Florida Administrative Code (F.A.C.) 
[The Taxpayer] Inc. ("Taxpayer") 
FEIN XX

Dear XX:

This is in response to your letter dated December 14, 2018, requesting this Department’s issuance of a Technical Assistance Advisement (“TAA”) pursuant to section 213.22, F.S., and Rule Chapter 12-11, F.A.C., concerning the taxability of certain charges imposed by your company. An examination of your letter has established you have complied with the statutory and regulatory requirements for issuance of a TAA. Therefore, the Department is hereby granting your request for a TAA.

Facts and Requested Advisement:

Your letter dated December 14, 2018, provides the following in part:

[The Taxpayer] designs interiors for our clients, [(the Client)] residence in XX Florida. We then order items such as couches, rugs, mirrors etc. to execute our design. [The Taxpayer] pays for the items, which often times includes discounts extended to us as members of the trade and then we bill the client for the items with a 10-35% mark up on each item. After we have received payment from our clients and the item is ready to ship [The Taxpayer] has the items shipped to a receiving house in XX Florida called [(the Mover)]. [The Mover] then receives, catalogues and stores all the items until [The Taxpayer] is ready to install the items to the client’s home. When [the Taxpayer] is ready to install, we organize and book [the Mover] to deliver the items to the client’s home and install them into rooms per [the Taxpayer’s] direction and oversight. [The Mover] then bills [The Taxpayer] the associated fees for the project and we in turn then bill the client the fees that include, receiving, storage, delivery and installation with a 10-30% markup for overseeing and organizing the process.

In an e-mail dated January 16, 2019, you provided the following in part:

[The Taxpayer uses] a receiving company to deliver and install non-permanent items into the client’s house. The receiving company drives the goods in trucks loads from various places to the client’s house and installs them into various rooms. They bill [the Taxpayer] in lump sums for truck loads. They do not break out how much each item on the truck costs but instead gives us a bid for the whole truck load/loads. [The Taxpayer] then bills the client the same way the receiving company bills us, in lump sums. . . .

In response to the Department’s request for additional supporting documentation your provided copies of the following:

• Design Services Agreement (the Agreement), dated August 7, 2015, prepared by the Taxpayer for the Client;
• Invoice #300058, dated November 5, 2018, issued by your company to the Client;
• Exhibit A, “Rates for Interior Design Services,” prepared for the Client;
• A Contract for Services from the Mover listing your company as the Customer;
• Invoice # 44281, dated September 15, 2018, from the Mover issued to the Taxpayer;
• Order Receipt #4347883 dated March 28, 2018, from XXXX issued to the Taxpayer; and,
• Invoice #300019, dated July 24, 2018, issued by the Taxpayer to the Client;

With your e-mail dated January 16, 2019, you included the following:

• Invoice #32170, dated October 15, 2018, prepared by XX billing the Taxpayer $33,338.95 for “Long Distance Delivery and Installation Service” provided to the Taxpayer at the Client job site.
• Invoice #300099, dated December 17, 2018, prepared by the Taxpayer billing the Client for various items including the “Art Installation for Oct 2018,” charges imposed by XX on invoice #32170.

The Agreement, provides the following in part:

. . . 1.5 Furnishings Procurement Phase

Because an integral part of the entire Design Concept of the project is founded upon [the Taxpayer’s] resources with the interior design trade, and as consideration and inducement for [the Taxpayer] to enter into this agreement you agree that purchases, such as furnishings, lighting, rugs and fabric etc. for the project shall be made only by [the Taxpayer], unless expressly agreed to by both parties.

[The Taxpayer] represents and warrants that it will purchase furnishings for the project at the maximum trade discount currently available to [the Taxpayer]. For the purposes of this agreement, "Furnishings" shall mean all finished materials, furniture, fabric, carpet, floor covering, decorative hardware, artwork, and accessories selected by [the Taxpayer] and approved by you following consultation with [the Taxpayer]. . . .

1.6 Furnishings Procurement Protoco

[The Taxpayer] will arrange delivery, assembly, and installation of the Furnishings into the project acting as your agent . . . .

Proposals will be processed as follows:

2.2 Furnishings Procurement Fees

[The Taxpayer] will act as your purchasing agent for all items needed to satisfy the Furnishings requirements of the project. All purchasing for the project handled by [the Taxpayer] on your behalf will be charged to you as follows:

Retail & Trade (net) Purchases: 35% mark-up on the first $1,500,000.00 of FF&E purchases. 30% mark-up on all FF&E thereafter.

Investment Art: 15% mark-up ***

(net cost of $35,000 or more per item)

*** If [The Taxpayer] is acting as art consultant Art below this amount per item is subject to FF&E mark up rates

Shipping & Delivery: 10% mark-up 
Reimbursable Expenses 10% mark-up

The Contract for Services from the Mover provides the following in part:

***

Description of Services:

Receive and inspect new incoming furnishing and décor that we will hold in storage until residential installation date provided by [the Client]. . . .

***

Invoice # 44281, dated September 15, 2018, from the Mover, provides the following in part:

Warehouse handling services performed on 8/22/18: $240.00

Locate, prep & load client requested items for transport: 
Merchandise designated by Designer, sidemarked TV Room 
Origination: XXXX Warehouse Climatized Vault Storage Local moving services performed on 8/28/2018 $1,920.00 
Transportation, delivery & Installation of above referenced 
acquisitions as directed onsite by Designer: Residential 
destination: XXXX Valuation securing merchandise in transit $883.00

Rubbish disposal $225.00

***

Invoice #300058, dated November 5, 2018, issued by the Taxpayer to the Client in the amount of $22,860.66, for various items of tangible personal property and reimbursable expenses. The invoice includes the following charge: 1.00 Each [Mover] INVOICE 44281 
Installation, Delivery, and Transportation 8/28/18 for 
TV Room Installation which included lighting crates for

Living Room and various other consoles $3,468.00 *** Order Receipt #4347883 from XX, provides the following:

. . . Architectural Wing Chair List Price $8,500.00 
Net Price Discount -$1,700.00 
Your Price $6,800.00 
Shipping $ 449.00 
Total $7,249.00

Invoice #300019, issued by the Taxpayer to the Client in the amount of $255,514.34, for various items of tangible personal property, including a charge for the Architectural Wing in the amount of $6,800.00. The subtotal for all the merchandise listed on Invoice #30019 is $182,152.52. The invoice also includes a 30% “mark up,” totaling $54,645.76, a crating charge of $319.00, freight charges in the amount of $1,687.70, and sales tax in the amount of $16,709.36.

***

Issues:

Whether the Taxpayer should charge sales tax on the Mover’s services and associated markup, when billing the Client.

Whether the 10-35% markup and charges for reimbursable expresses are considered to be part of the sales price of the materials sold by the Taxpayer to the Client.

Whether the 10-35% markup is to be included when determining the $5,000 discretionary sales surtax limitation.

Whether the charges for delivery, installation, and freight imposed by XX that are passed on to the Client are to be included when determining the $5,000 discretionary sales surtax limitation when billed separately from the sale of tangible personal property.

Law and Discussion:

Section 212.05, F.S., generally imposes tax on the sale of tangible personal property. The tax is calculated on the "sales price," which term is defined by section 212.02(16), F.S., in part as ". . . the total amount paid for tangible personal property, including any services that are a part of the sale . . . without any deduction therefrom on account of the cost of the property sold, the cost of materials used, labor or service cost, interest charged, losses, or any other expense whatsoever. . . ."

Rule 12A-1.006(12), F.A.C., provides that charges by an interior decorator are not subject to sales tax when no materials or supplies are provided by the interior decorator. Rule 12A1.001(2)(a)1., F.A.C., provides that interior decorator fees are taxable and cannot be exempted as a professional or personal service charge when the transaction involves the sale of tangible personal property. Rule 12A-1.001(2)(a)2. and 3., F.A.C., provide that design fees imposed by interior decorators are exempt only when they are not contingent on or part of the sale of tangible personal property.

The Agreement provides that the Taxpayer will purchase all furnishings for the project which will be subject to a “cost plus percentage fee” as stipulated by the Agreement. The Agreement provides for a 30-35% “mark-up” for furnishings and a 15% “mark-up” for investment art. The agreement also provides that shipping, delivery, and reimbursable expenses shall include a 10% “mark-up” fee.

An expense incurred by the Taxpayer, such as the storage and handling fees imposed by the Mover, that is later passed on to the customer with the sale of tangible personal property, is part of the sales price, as it represents an expense of the Taxpayer. The Agreement clearly links the mark-up fees and charges for reimbursable expenses directly to the tangible personal property provided under the Agreement. The Agreement provides that “the associated fees for the project . . . include, receiving, storage, delivery and installation with a 10-30% markup for overseeing and organizing the process.” The mark-up fees and charges for reimbursable expenses are part of the sales price of tangible personal property and are subject to tax under sections 212.02(16) and 212.06(1)(a), F.S.

Invoice #30019, includes a charge for the Architectural Wing Chair in the amount of $6,800.00. The invoice includes a 30% mark-up, crating charge, and freight charges for all of the items included in the invoice. As proved, the mark-up fees and charges for reimbursable expenses are part of the sales price, or sales amount of the tangible personal property sold to your clients.

Section 212.055, F.S., authorizes the counties of Florida to levy a discretionary sales surtax. Section 212.054(2)(a), F.S., provides that the discretionary surtax is imposed on "all transactions occurring in the county which transactions are subject to the state tax imposed on sales, use, services, rentals, admissions, and other, transactions. . . ." The basic principle in applying discretionary surtax is that it piggybacks the state sales and use tax. If a transaction is subject to sales tax and occurs at a location where surtax is imposed, the surtax also applies.

Section 212.054(2)(b)1., F.S., provides that the sales amount above $5,000 on any item of tangible personal property shall not be subject to the surtax. If two or more taxable items of tangible personal property are sold to the same purchaser at the same time, then the items may qualify, under certain conditions, as a single sale of an item of tangible personal property for purposes of the limitation.

The Department's interpretation of the limitation is provided in Rule 12A-15.004, F.A.C. In order for the exception to apply, two tests must be satisfied. There must be a single sale in which one purchaser buys all the items at the same time, with a purchase order or other documentary evidence that there has been such a single transaction. Second, the multiple items reflected on that documentation will be aggregated for purposes of applying the $5,000 limitation only if they fall into one of two categories. They must either be items that are normally sold in bulk, or they must be items that will be assembled into a working unit or a part of one.

All items sold to one purchaser at one time can meet the single sale test. There must be tangible evidence of the sale, such as an invoice, sales slip, charge ticket, written purchase order or agreement that specifies both a quantity certain of materials and a time certain by which all the materials will be delivered (when multiple deliveries are made, and multiple invoices are issued) in order to qualify as a single sale. This applies to all items purchased pursuant to a single written contract or purchase order, when the written contract or purchase order specifies a quantity certain of items being sold and a time certain by which the items must be delivered. When the written contract or purchase order specifies the quantity and the delivery date, the single sale test is met regardless how many deliveries are made or invoices are issued. If the quantities and/or delivery time frame are not specified, then each delivery/invoice constitutes a single sale.

The single sale requirement addresses the character of the transaction itself. This requirement addresses whether there has been one discrete transaction to which the limitation can be applied or multiple sales that are separately subject to the limitation. Invoice #300099, includes charges for “Art Installation for Oct 2018,” and “XXXX Invoice #32170A and #32170B.” As provided in your e-mail dated January 16, 2019, you bill the client for these charges “in lump sums . . . [because you] cannot tell the cost of each item that is ship[ed] and installed.” The charges for delivery and installation are billed separately from the items being installed. Therefore, the single sale test, as discussed above, has not been met.

Conclusion:

The Taxpayer should charge sales tax on the Mover’s services and associated markup, when billing the Client. The mark-up fees and charges for reimbursable expenses are part of the sales price of tangible personal property and are subject to tax under sections 212.02(16) and 212.06(1)(a), F.S. Specifically, the charges for storage and handling imposed by the Mover, that are marked up and passed on to the Client, are part of the sales price subject to sales tax.

The 10-35% markup is considered to be part of the sales amount of the materials sold to the Client and should be included when determining the $5,000 discretionary sales surtax limitation in cases where a single sale transaction is documented by a charge ticket, sales slip, invoice, or other tangible evidence. Invoice #300019, provides such evidence of a single sale transaction. The invoice includes charges for the Architectural Wing in the amount of $6,800.00, includes the 30% “mark up,” crating charges, and freight charges. The mark-up and charges for reimbursable expenses are to be considered when determining the $5000 discretionary sales surtax limitation since all are billed in a single sale transaction.

However, the charges for delivery, installation, and freight imposed by XX that are passed on to the Client are not to be included when determining the $5,000 discretionary sales surtax limitation. As provided, section 212.054(2)(b), F.S., requires that a single sale transaction must be documented by a charge ticket, sales slip, invoice, or other tangible evidence in order for the $5,000 limitation to apply. Based on the information provided, the installing services are billed separately. The charges are subject to the full amount of discretionary sales surtax.

This response constitutes a Technical Assistance Advisement under section 213.22, F.S., which is binding on the Department only under the facts and circumstances described in the request for this advice as specified in section 213.22, F.S. Our response is predicated on those facts and the specific situation summarized above. You are advised that subsequent statutory or administrative rule changes, or judicial interpretations of the statutes or rules, upon which this advice is based, may subject similar future transactions to a different treatment than that expressed in this response.

You are further advised that this response, your request and related backup documents are public records under Chapter 119, F.S., and are subject to disclosure to the public under the conditions of section 213.22, F.S. Confidential information must be deleted before public disclosure. In an effort to protect confidentiality, we request you provide the undersigned with an edited copy of your request for Technical Assistance Advisement, the backup material, and this response, deleting names, addresses, and any other details which might lead to identification of the taxpayer.

Your response should be received by the Department within 15 days of the date of this letter.

Sincerely,

Brinton Hevey 
Tax Law Specialist 
Technical Assistance and Dispute Resolution 
(850) 717-6839 
Record ID: 142848