Interior Decorators & Interior Designers
The Arvada Municipal Code imposes a sales tax upon the purchase price paid for tangible personal property sold at retail in the City. To the extent a sufficient, legally-imposed sales/use tax was not paid to the City or another municipality at the time of purchase, Arvada use tax is due.
As an interior designer or decorator, your work may include services such as design, repair, reupholstering, color coordination, and planning. You may also sell merchandise, including furniture, window coverings, carpeting, home accessories, cabinets, and samples. An interior decorator that sells decorating supplies at retail and also provides installation contractor services is considered a retailer/contractor.
- When selling personal property (furniture, area rugs, etc.) and construction supplies separate from installation, sales tax should be collected by the decorator from the client on the retail selling price of the merchandise, including any markup.
- When an interior decorator uses construction materials, purchased wholesale, as part of the contractor services to install, the decorator must pay use tax based upon the wholesale purchase price.
Taxable Sales - Personal Property
Colorado is a "point of delivery" sourcing state which means that the point where the delivery of the property or services occurs is the point of taxability. Sales tax should be collected from the client and remitted to the tax jurisdictions where the retail sale was delivered.
For those items that are included in the design services (finished drawings or plans, and samples) that are transferred to the client as part of the service are subject to sales / use tax by the interior designer.
Fees for Professional Services
Many designers and decorators charge a fee for professional services. Typical services include consulting, design, layout, selection of color schemes, coordinating furniture and fabric, supervising installations, and so forth. The fee may be a negotiated fixed amount or a percentage or a percentage of the selling price of the furnishing, labor, and installation charges. Tax does not apply to charges for professional services that are not directly related to the sales of merchandise. Be sure to list those charges separately on your invoice.
There may also be charges for a client for the labor associated with a taxable sale. For the purposes of calculating sales tax, labor charges are generally divided into three basic categories: fabrication, repair, and installation. In general, tax applies to charges for fabrication labor, but not to charges for labor considered repair or installation. Nontaxable labor charges should be itemized separately on an invoice.
When you make a new item or change the form or function of an existing item and then sell it to your client, the labor is considered fabrication labor. Alternation of new items includes any work performed upon new items such as garments, bedding, draperies, or other personal and household items to meet the requirements of your customers. The work may involve adding or removing material from the item, rearranging, restyling, or otherwise altering the item. Alternations such as these, result in the creation or production of a new item or constitute a step in the creation or production of a new item for your customer. The tax applies to your charges for the fabrication labor whether you provide the material or use materials provided by your client.
Example of taxable fabrication labor includes, but are not limited to:
- Quilting new fabric
- Converting a vase into a lamp
- Making bedspreads, draperies, slipcovers, and pillows from fabric provided by you or your client
- Making an area rug from carpet remnants
- Dyeing a client's new rug or other new fabrics
Repair labor is the repairing, refinishing, or reconditioning of an item to refit or restore it for its original use. Alternation of used items includes mending, shortening or lengthening, taking in or letting out, or otherwise altering used items such as bedding, draperies, or other personal and household items. When your alternation merely refits or repairs an item for which the items were created or produced, charges for the alteration of used items are not subject to tax.
Example of nontaxable repair labor includes, but are not limited to:
- Refinishing a client's antique table
- Cleaning a client's used rug
- Dyeing a client's used rug
- Relining old draperies for a client
Labor is required to install an item after it has been delivered to the client's premises. It does not include any work performed prior to installation. Charges for installation labor are not taxable. However, the tax generally applies to charges for any materials you provide in installing a product, such as nails, bolts, screws, cables, and so forth.
Example of nontaxable installation labor includes, but are not limited to:
- Hanging draperies after delivered to the job site
- Hanging paintings and other artwork
- Connecting an appliance to a power source
Retailer / Contractor
A retail/contractor is a contractor who also makes retail sales of construction and building materials, non-building materials, or both. A retail/contractor generally makes retail sales in one of two ways:
- In the fulfillment of time and materials contracts where sales tax is collected from the client on the materials portion of the contract
- As a retailer who makes "over-the-counter" sales of non-building materials that the retailer may or may not install for the client
- Tony, the local upholsterer, upholsters chairs. When a customer brings in their chairs to be upholstered, Tony helps them pick out the new fabric that will be used. When Tony is done he bills the customer for the fabric, tacks, and the new stuffing that is used. The materials are all subject to sales tax. Tony separately charges his service/labor for the time it took him to upholster the chair.
- Bob's Upholstery buys old used dining room furniture at auctions for resale. Bob then repairs or upholsters the furniture before it is put up for sale. The materials such as fabric, varnish, and nails that become part of the furniture, can be purchased tax-free, however, the sandpaper and the equipment used to repair the furniture is subject to sales or use tax. Once Bob is done, Bob can sell the furniture in his front showroom and the total sale price of the furniture is subject to sales tax.
- A client contacts ABC Interiors and expresses interest in renovating their business office. ABC Interiors provides samples of different carpet, wallpaper, fabric, and paint colors as well as spending a substantial amount of time developing alternative color schemes, colors, and looks. The tax would not apply to ABC Interiors fees for these services because no merchandise has been sold to the client. Now, after reviewing the proposals, the client makes his choice and places an order for the merchandise including new office furniture. ABC Interiors bills the client for the merchandise at cost and then adds a Procurement Fee of 15% over the cost of the merchandise to cover their services and markup. Both the merchandise and the procurement fee are taxable.
Note: This information is a summary in layman's terms of the relevant Arvada tax law for this subject, industry, or business segment. It is not intended for legal purposes to be substituted for the full text of the Arvada tax code. However, the tax guide shall be used in conjunction with the Arvada tax code (chapter 98) in determining tax liability.