Sales of tangible personal property

For interior designers/consultants that sell or provide tangible personal property (furnishings, fixtures, artwork, or other goods) to their clients, the correct tax treatment is determined by who is responsible for payment of the goods as noted in the contract or agreement between the seller and buyer.

Some of the methods by which interior designers/consultants may contract to sell tangible personal property to their clients include:

Buying and reselling tangible personal property

Sales to consumers

If you purchase or order furnishings, decorating items, fixtures, artwork, or other goods in your name or your business’ name and then resell the goods to clients, you are making retail sales. It is immaterial that the goods may be sold “at cost” or with no markup or that you are “reimbursed” by the client.

Unless you are making a purchase as an agent for your client, you must pay B&O tax under the Retailing classification on all amounts you receive for sales. You must also collect sales tax from your client on these sales, unless the sale is otherwise exempt. The sales tax must be calculated on the gross sale price, including any markup you may add and any delivery or shipping charges.

You do not need to pay sales tax if you give a reseller permit to the vendor/seller when purchasing goods for the purpose of reselling them. If you do not provide a reseller permit, the vendor will charge sales tax to you on the purchase.

Example: ABC, Inc., a design and decorating company, meets with clients to determine their design needs and then works with them to select particular furnishings, window treatments, and similar items for their home. Once the client selects items, ABC, Inc., purchases and pays for the items from the various vendors. ABC, Inc., provides a reseller permit to the vendors. ABC, Inc., bills the client for the consulting service and tangible personal property purchased. The consulting fee and sale of goods charges are not separately stated on the invoice.

The entire invoice (consulting fee and charge for goods) is subject to retail sales tax. In addition, the income from the invoice is subject to B&O tax under the Retailing classification. ABC, Inc., should use a reseller permit to purchase without paying sales tax the drapes, blinds, etc., that it will resell.

Sales for resale

If you purchase tangible personal property for other contractors who will resell the goods to their customers, you are making wholesale sales, provided that the contractor gives you a reseller permit. Your income from wholesale sales is subject to B&O tax under the Wholesaling classification. If you do not receive a reseller permit from the person buying the items, you must collect sales tax unless the sale is otherwise exempt.

Example: Design Co. is hired by a prime contractor to purchase and install window coverings in a custom home the contractor is building for a landowner. The prime contractor provides Design Co. with a reseller permit.

Because Design Co. received a reseller permit from the general contractor, their income from this job is taxable under the Wholesaling classification of the B&O tax. Design Co. should also give a reseller permit to the vendor when it purchases drapes, blinds, etc., for installation in the custom home.

Purchasing as an agent for a client

You may only purchase goods as an “agent” for your client when the contract or agreement between you and the client clearly establishes a “principal” and “agent” relationship. You may not have any principal or secondary (guarantee) liability to pay for any goods purchased. Therefore, the vendor must acknowledge that only your client is liable for payment, for example, by invoicing only your client for the goods. Thus, the retail sale occurs between your client and the vendor. This transaction is not a retail sale for your business. In addition, your books and records must:

• Reflect that the transactions were made in the name of and for the account of the client/principal, and show the name of the client for whom the items are being purchased.
• List the following:
  • amount of purchases made as an agent
  • amount of commissions earned
  • any other incidental income derived by you from such transaction

(See WAC 458-20-159 for additional information on agency agreements.)

You must report any commissions or other income you receive from arranging for such transactions under the Service and Other Activities B&O tax classification.

Example: Interior designer Kelly meets with a client to determine décor and furnishings for the client’s new home. With the client’s approval, Kelly orders furnishings from a furniture retailer. The furniture retailer agrees that the client is solely responsible to pay for the furniture and the invoice is made out in the client’s name. Kelly is not primarily or secondarily liable to pay for the furnishings and does not guarantee payment. Kelly receives a commission from the furniture retailer for referring the client to their store. She also receives a fee from the client for her consultation services.

Kelly must report the commission income from the furniture retailer and her consulting fee income under the Service and Other Activities B&O tax classification. The furniture retailer will bill the client directly for the furniture and sales tax will be charged by the retailer to the client.

Example: Joe, an interior designer, purchases several items for his client at an estate sale. Joe paid for the items, then billed his client for the cost of the items, with an additional charge for his services. He does not have a contractual arrangement with his client, establishing an agent/principal relationship.

Because Joe does not have a contract establishing his status as an agent and is fully liable for the items purchased at the auction, he cannot claim to merely be an agent for his client. In this situation, he has purchased the items at the estate sale for the purpose of reselling them to his client. He must provide a reseller permit at the estate sale, then charge his client sales tax on the sale of the items to them. The income from the sale is also subject to B&O tax under the Retailing classification.

Providing design/consulting services along with selling tangible personal property

When you provide design services and sell tangible personal property, your charges for these two activities must be separately stated or segregated on the invoice. If your charges for design work and sales of items are separately stated, the design/consulting fee should be reported under the Service and Other Activities B&O tax classification, while income from sales of goods is subject to retail sales tax and B&O tax under the Retailing classification.

Example: ABC, a design and decorating company, meets with clients to determine the clients’ individual design needs, then works with the clients to select particular furnishings, window treatments, and similar items. ABC bills the client for the consulting service and the tangible personal property purchased, separately stating these charges on their invoice.

Because the consulting work and retail sale components are separately stated on the invoice, the consulting fee is subject to B&O tax under the Service and Other Activities classification. Income from the sale of goods is subject to B&O tax under the Retailing classification. Additionally, ABC must collect sales tax on the sale of goods to the client. ABC should use a reseller permit to purchase without paying sales tax the drapes, blinds, etc., it resells to its clients.

Example: Design Co. is hired by a prime contractor to purchase and install window coverings in a custom home the contractor is building for a landowner. The prime contractor provides Design Co. with a reseller permit.

Because Design Co. received a reseller permit from the general contractor, their income from this job is taxable under the Wholesaling classification of the B&O tax. Design Co. should also give a reseller permit to the vendor when it purchases drapes, blinds, etc., for installation in the custom home.