Why Are Interior Design Companies Being Audited for Sales Tax?
How are you being audited for sales tax when you offer a service? A great one at that!
When you are approached by the Georgia Department of Revenue (GDOR) for your books and records, you need to know what they are looking for and why they think you might owe sales tax.
Again, you as the vendor did not receive anything that you needed to pay sales tax on, however, you might have been obligated to collect sales tax.
How Does This All Work?
If you are selling furniture and/or similar tangible items such as decorations as a part of your package as an interior designer, then you will have a sales tax burden.
Two Common Scenarios:
This works in one of two ways in most cases:
- Purchase with Sales Tax Certificate:
- You purchased furniture from a vendor.
- You resold it to your end client.
- You can either purchase the furniture with a sales tax certificate and collect the sales tax from your client.
- Pay Tax at Point of Sale:
- You paid the sales tax directly to the vendor at the point of sale.
- You then sold the furniture to your client.
What Does the GDOR Look At?
The GDOR looks at the gross receipt of your transaction.
If the end product looks like you sold a combined service of furniture, tangible goods, and the service of design consulting, your entire receipt can be subject to sales tax.
Why Interior Designers Often Face This Issue
Having dealt with a few of these types of audits in this particular industry, it is almost necessary for an interior designer to sell furniture and other tangible items with their services.
- It’s profitable.
- It’s necessary to complete their job.
Call our office if your company is undergoing a sales tax audit.
Frequently Asked Questions
Why are interior designers being audited for sales tax?
Interior designers are often audited because they sell tangible goods like furniture and decorations along with their services. These sales may be subject to sales tax, even if the design service itself isn’t.
What triggers a Georgia Department of Revenue (GDOR) audit?
The GDOR typically audits when it appears that gross receipts include both services and taxable tangible goods. If proper tax collection or exemption documentation is missing, it may raise a red flag.
If I paid sales tax to my vendor, do I still owe anything?
It depends. If you paid sales tax at the point of purchase and then resold the item, you’re generally compliant. But if you used a sales tax certificate to buy tax-free, you must collect and remit sales tax from your client.
Can the entire invoice be taxed if it includes design services?
Yes. If your invoice includes a mix of design services and tangible items like furniture, the GDOR may treat the entire transaction as taxable unless you’ve clearly itemized and separated taxable and non-taxable components.
How can interior designers avoid sales tax issues?
Maintain clear records, properly use sales tax certificates, itemize invoices, and understand what aspects of your business are taxable. Consulting a tax professional familiar with Georgia’s rules is highly recommended.