N.C. tax ruling may hurt many interior designers
Larry Thomas, Business Editor -- Furniture Today, March 2, 2008
After recovering from the shock of an audit that claimed she owed thousands of dollars in uncollected North Carolina sales tax, Emmy Williams felt good about her chances of getting the findings overturned.
Williams, who runs an interior design firm in Winston-Salem, N.C., had been granted a hearing before the assistant secretary of the state's Department of Revenue and had hired a high-powered tax attorney to represent her.
The attorney told her she had a slam-dunk case. There was no way the hearing officer was going to uphold an auditor's ruling that required her to collect sales tax on design and consulting fees for clients to whom she sold merchandise, her lawyer said. After all, labor alone isn't subject to sales tax in North Carolina, and consulting work clearly fits the definition of labor, she was told.
But her slam dunk suddenly became an air ball.
The assistant secretary ruled that Williams' business, Interior Solutions, met the definition of a retailer, not an interior design firm. Therefore, she should have been collecting the state's 6.75% sales tax on consulting fees charged to clients to whom she also sold merchandise.
This included an instance where she spent dozens of hours helping a law firm design new office space — and sold them a single piece of artwork.
"The term 'sales price' means the total amount of consideration for which personal property or services are sold, leased or rented," the ruling read, citing various North Carolina statutes. "The term includes the retailer's labor or service costs, any other expense of the retailer, and charges by the retailer for services necessary to complete the sale."
Williams' plight has raised the ire of the design community. Through organizations such as the American Society of Interior Designers, the International Interior Design Assn. and the Interior Design Society, designers are bringing the matter to the attention of elected officials.
"I think it's going to end up running many interior designers out of business," Carson said, noting that most designers can't afford to fight the state taxman in court.
Although a strategy hasn't been formulated, many designers believe their best hope lies with the state legislature, which could pass legislation exempting their profession from collecting sales tax on consulting fees.
The designers have gotten the attention of High Point Market Authority President Brian Casey, whose group has been making a concerted effort to attract more designers to High Point. "There has to be a mistake in the way they are interpreting it," Casey said of the ruling. "It's perplexing."
Indeed it is. The state's Department of Commerce has given the Market Authority hundreds of thousands of tax dollars to promote the event. But the state's Department of Revenue appears to be targeting one of the very groups on whom those marketing dollars are being spent.
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