CVW News 3rd Quarter | 2025

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Interior Designer Sales Tax Series Part 03 | Should Sales Tax be Added to Your Design Services Fees and/or Shipping Charges?

This sales tax blog series was written by Dakota Design Company and evaluated by CVW Accounting, 2/24/25.

Doing the right thing regarding sales tax can be challenging for small business owners. But most business owners do want to do the right thing. And even more business owners want to avoid the risk for tax audits, tax penalties, and payment of back taxes. So in this article we're going to make sure interior designers are aware of their responsibility.

If you are purchasing to-the-trade-only tangible goods, and selling them to your clients, you already will have a sales tax permit (that allows you to make purchases without paying sales tax), and should understand how to invoice your clients for the appropriate amount of sales tax on sales, and how and when to remit those tax dollars to your state Department of Revenue for state and local sales tax. For any interior designer who needs a refresher on these sales tax basics, please read this post that covers all this need-to-know information.

Calculating sales tax on a product or service is fairly simple. First you need to determine whether the item or service is taxable, and if so, you need to know the applicable tax rate. Most states' Department of Revenue websites include a sales tax calculator (look for something called Sales Tax Rate Calculator, or look for Calculate Sales Tax Rate). By entering the applicable zip code, you can find the correct tax rate for that area.

One of the challenges for interior design business owners is determining whether design services and shipping charges—in addition to the sale of products and materials—need to be taxed.

If you've been operating your interior design business for some time, you are likely aware of whether the rendering of professional services—like interior design—and the cost for shipping, storage, and delivery are taxable in your state.

As with anything related to sales tax, policies vary by state. In most states, most services are not taxed, but some are. In a few states, most services ARE taxed; that is, the default rule is service taxation. The states where most services are taxed are: Hawaii, New Mexico, South Dakota, and West Virginia. And other states, New York City, for example, has applicable sales tax rules and rates for interior design services specifically.

Many states, such as California, do not generally tax most services, but also stipulate that if the service is directly related to the sale of merchandise or tangible goods, then yes, that design service charge is taxable. An example may be working with clients to choose upholstery fabrics and chair styles for a seating piece the client will purchase. And then, of course, the transaction that involves the sale of the actual chair itself is certainly taxable, because the chair is a taxable item.

But—in states that have tax policies similar to California—if interior design services do not relate to the sale of merchandise or tangible goods, then no, those interior design service fees are not taxable. An example would be a design service where the interior designer is preparing a floor plan and renderings of a client's space.

It's not always clear cut where the services-related-to-sale, and services-not-related -to-sale lines are drawn. Here is an example:

You meet with a client to determine preferences and project objectives. You develop a presentation and show the client flooring, furniture, and wallcovering samples. The client is not happy with one of your selections, so you look for other options, and present those. The client approves the design. These are considered consultation services.

NONE of the services described above are taxable in the state of California, because no sale of tangible goods has occurred.

Now, after reviewing your proposals, the client makes his or her choice and places an order with you for merchandise. To complete the job, you spend time measuring for draperies and accompanying your client to showrooms. Next, you spend time creating purchase orders, communicating with vendors, invoicing the client for their purchase, and tracking delivery timing. All of these services would be taxable in the state of California, as the work you are performing is directly related to the sale of tangible goods.

The above scenarios relate to states that stipulate that professional services associated with the sale of merchandise are taxable, and professional services not associated with the sale of merchandise are not taxable.

That may or may not be the case for you. Some states may tax professional services like interior design across the board, and others may not tax them at all, regardless of whether a product sale takes place or not.

There are a few ways you can determine whether interior design services are taxable in your state:

• Google: Are interior design services taxable in __________[name of state]? You might find the correct documentation from your state's Department of Revenue website.
• Go directly to the website of your state's Department of Revenue. Search for Taxable Services, and see what information you can find.
• Go directly to the website of your state's Department of Revenue. On the Business Tax page, find a "Contact" phone number or email where you can inquire with a state employee directly.
• Consult with a tax professional or CPA (like CVW Accounting, who works specifically with interior designers).
• This website does provide some good state-by-state information about professional services taxation

Are Subcontracted Services Taxable?

Sometimes, an interior designer may bill for the services of another professional, and will pay that service provider directly. An example would be a situation where a designer sub-contracts the services of a drapery workroom, and then includes the cost of those services and fabrication in their invoicing to the client. It would be important to determine if those services are taxable as well, by finding information on your state's Department of Revenue website about taxable services.

What About Shipping, Storage, and Delivery Fees? Are Those Taxable?

Another related issue is whether shipping, storage, and delivery charges should be taxed. These services may be provided by a receiving service (learn more about that here). Similarly, a visit to the State Department of Revenue website and a search for Taxable Services, or a Google search, should help find the answer to this question. This website also provides good current information on shipping taxation by state.

The key to any tax-related issue is to be well-informed. Any business owner needs to be aware of tax rates, policies, and regulations to avoid audits and penalties.

Disclaimer: We are not accountants or tax attorneys. This blog series is for informational purposes only and should not be considered legal or financial advice. Please consult with an accountant or tax professional for guidance on your specific situation. You can also contact the support team at your state's Department of Revenue. Each state's DOR web page should include an email address and toll-free phone number (under Contact Us) for you to reach out with specific questions about business sales tax in your area.

Creating Your First AI Policy

Reminder: Financial Reporting Reference Guide

Just a friendly reminder that your monthly reporting package includes a Financial Reporting Reference Guide to help you navigate and interpret your financial statements. This guide is a handy resource for understanding the details of your reports, tracking trends, and making informed decisions about your business.

We encourage you to refer to this guide each month as you review your financials—it’s designed to make the process easier and more insightful. As always, if you have any questions or would like support in reviewing your reports, our team is here to help.

Team Update: Amy Staves & Kati Jerde promoted to Senior Accounting Managers

We are so excited to share that Amy Staves and Kati Jerde have been promoted to Senior Accounting Managers! 🎉 Both Amy and Kati have been instrumental in leading and mentoring our growing team while providing top tier service to our valued clients. Their dedication, expertise, and outstanding work ethic make them invaluable members of our company. Congratulations, Amy and Kati - we’re so grateful for all that you do!

Reminder: Collect W-9s for 1099 Reporting

As year-end approaches, we want to remind you to collect Form W-9s from all vendors who may be eligible for a 1099. Having W-9s on file now will save time and help avoid reporting issues later.

Who requires a 1099?

In general, you must issue a Form 1099-NEC or Form 1099-MISC if you paid:

• $600 or more during the year to an individual, partnership, LLC, or unincorporated business for services, rent, prizes, awards, or other income.
• Attorney fees (even if the law firm is incorporated).
• Payments to independent contractors for services.

Action step: Please be sure to request and collect a completed Form W-9 from every eligible vendor as soon as possible, and share them with your accounting team for year-end reporting.

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