N.C. tax ruling shocks designers
By Larry Thomas -- Furniture Today, February 25, 2008
High Point — Leaders of three groups representing interior designers are spearheading an effort to overturn recent sales tax rulings by the North Carolina Department of Revenue, which they say could put many designers out of business.
The groups say the state has begun requiring some designers to collect North Carolina sales tax on consulting fees from clients who also buy products from them.
Plus, the state has ordered several design firms to pay thousands of dollars in back taxes, penalties and interest for failing to collect the state's 6.75% sales tax on consulting fees in past years.
Such requirements, they say, could ruin design firms financially since most are small businesses that can't afford to fight the state tax department in court.
"I think it's going to end up running many interior designers out of business," said Susan Carson, a Winston-Salem, N.C., designer who was ordered to pay back taxes last year after a state audit.
Speaking at a meeting of the American Society of Interior Designers here, Carson and Emmy Williams, another Winston-Salem designer, told the group about their audits and the resulting interpretation of state tax law that they believe are incorrect.
"I was in shock," Williams said of her reaction to the auditor's findings that she should have charged sales tax on many of her firm's consulting fees. "I thought the way I was doing business was on the up and up."
Williams, owner of Interior Solutions Inc., told the group she hired a prominent tax attorney and appealed the auditor's ruling to a panel of high-ranking Department of Revenue officials. However, they ruled against her, as well.
Designers have always charged sales tax on merchandise sold to clients, but their consulting fees, which cover services such meetings with contractors, job site visits and the like, have never been subject to sales tax previously.
"Clearly, your labor should not be taxed," said Jack Hendrix, a High Point certified public accountant who also addressed the group. "If you were to get this in front of a judge or in front of the state legislature, you're probably going to win."
Williams and Carson said they were told by state tax auditors that anytime a designer sells a product to a client, it makes the entire consulting fee subject to sales tax. Plus, consulting fees for all past and future work with the same client would then be taxed as well, they explained.
"If you had been doing work for someone for 10 years, you would have to go back and charge sales tax on those fees," Williams said.
Leaders of the local ASID chapter said they planned to meet with area representatives of the International Interior Design Assn. and the Interior Design Society to devise a strategy to get the rulings reversed.
They said they plan to meet with state legislators and representatives of North Carolina Gov. Mike Easley.
