Sales Tax for Interior Designers and Remodelers Who Resell Furniture and Materials: North Carolina E-595E, E-589CI and Design Fees

A designer who sells furniture, lighting or drapery to a client is making a retail sale and collects sales tax from the client, buying from suppliers tax-free with a resale certificate. In North Carolina, design services provided with goods are exempt only when the design fee is separately stated on the invoice; folded into the price, they are taxed with the goods. A contractor doing a capital improvement (new construction, reconstruction, remodeling, or permitted work) is, in North Carolina, the consumer of the materials: tax is paid when the materials are bought, no sales tax is added to the client's bill, and none may be separately stated on the invoice.

Why designers and contractors get this wrong

Many designers and remodelers now use software such as Houzz Pro to build selection boards, estimates, invoices and purchase orders; the client pays online and the designer orders from suppliers. The software puts merchandise, design fees and construction work on the same invoice, but each is taxed differently. Even Houzz Pro's own help article on tax paid to vendors stops short of telling you how to invoice clients, recommending that you ask your accountant or state tax agency, because some states allow a deduction on the sales tax return and others don't.

This article uses North Carolina as the example, based on the North Carolina Department of Revenue's Sales and Use Tax Bulletins (SUTB), January 2026 edition. Other states differ, as noted at the end.

Designers selling furniture: collect tax, buy with Form E-595E

SUTB 49-1: retail sales by interior designers and decorators are subject to sales and use tax. When you choose a sofa, lighting or rugs for a client, buy them from a supplier and resell them with a markup, that is a retail sale. Register for North Carolina sales tax first (Form NC-BR), charge the combined rate where the client takes delivery, and file Form E-500 on schedule.

Buy with a resale certificate. Under SUTB 5-1, a purchaser claiming an exemption gives the seller Form E-595E, the Streamlined Sales and Use Tax Certificate of Exemption, fully completed. For goods you buy to resell, give the supplier an E-595E marked for resale and the supplier won't charge tax; you collect tax when you sell to the client. A supplier that obtains a complete certificate within 90 days of the sale isn't liable if the exemption turns out to be wrong; the risk shifts to the buyer.

If a supplier charged you tax anyway. Sometimes a supplier ignores the certificate and charges tax, and software such as Houzz Pro books it to a tax-paid-to-vendor account. Don't simply pass it through as a second layer of tax on the client invoice. Ask the supplier to correct the invoice, or follow North Carolina's rules for the situation; states differ on how such tax can be recovered.

Is the design fee taxable? In North Carolina, it depends on separate statement

SUTB 49-2: charges for interior design services provided in conjunction with a sale of items are exempt if separately stated on the invoice or similar billing document given to the purchaser. If the fee is not separately stated and is folded into the price of the goods, the whole amount is taxed as the sale price.

Example (hypothetical numbers, to show the method): a designer in Wake County, North Carolina buys a sofa for a client for $3,800, sells it with markup for $5,000, and separately bills a $1,200 design fee. The designer gives the supplier an E-595E and pays no tax on the purchase. On the sale, $5,000 × 7.25% (Wake County's combined 2026 rate) = $362.50 of sales tax; the separately stated $1,200 fee is not taxed. A single $6,200 lump-sum invoice would make all $6,200 taxable, adding $87.00 that the client pays and you must remit.

Design-only engagements. If the client buys furniture directly from a showroom or retailer and you bill only a design fee, you have no retail sale; North Carolina generally doesn't tax a stand-alone design fee. That is North Carolina's rule; some states tax design services themselves.

Contractors on remodeling jobs: tax is paid on materials at purchase

SUTB 72-3: North Carolina does not impose sales and use tax on the gross receipts from a real property contract. A real property contract is a contract to perform a capital improvement for someone else, which includes new construction, reconstruction and remodeling, and work that requires a permit under the State Building Code (with exceptions for some individual repairs). The contractor is the consumer of the materials it installs; it pays tax to the retailer when buying them, or remits use tax directly if none was charged.

No tax on the invoice. SUTB 72-3 says any amount a real property contractor separately states as tax on a real property contract invoice is an erroneous collection that must be remitted to the state. A remodeler's invoice to the homeowner should therefore have no sales tax line; the tax was paid on the materials and is built into your price.

Designers who receive Form E-589CI. Under SUTB 49-3, a designer who receives Form E-589CI, the Affidavit of Capital Improvement, from a homeowner or contractor treats the job as a real property contract and pays tax when buying the materials for it. Items that don't become part of the real property, such as freestanding furniture, rugs and décor, remain taxable retail sales even with an E-589CI.

Repair, maintenance and installation are different. Repair, maintenance and installation services that aren't capital improvements are generally taxable as services in North Carolina. When a project mixes remodeling and repair work, separate them by contract and scope.

Collecting through Houzz Pro: reconciling the 1099-K

Houzz Pro's online payments are processed by Stripe, and Houzz Pro's help page says Stripe helps prepare the 1099-K and sends it by January 31. That page still cites the old $600 threshold; the One Big Beautiful Bill Act of July 2025 restored the federal threshold of more than $20,000 and more than 200 transactions, and some states are lower. The 1099-K shows gross client payments, including sales tax you collected, resold merchandise, design fees and construction receipts. On your return, take the sales tax out of the gross (it isn't your income), book merchandise, design fees and construction separately, and reconcile to the form.

What about other states?

They vary widely. Some tax design fees outright, some treat bundled design, procurement and markup charges as taxable, and some let contractors buy materials for resale and charge the homeowner tax. The rules follow the transaction: the state where goods are delivered or the work is done governs. Designers who buy and work across state lines should first confirm where they need to register.

What Houzz is still good for and how home goods sellers choose platforms and entities are covered in our Houzz sellers guide; North Carolina registration and filing are in our NC sales tax guide. To have us review your invoice format and registrations, book a free 15-minute consultation or reach us on WeChat at YCLUSA.