This document summarizes two major state tax issues for architecture and engineering (A&E) firms: sales/use tax and state income tax. It discusses how A&E services are defined for tax purposes and whether they are taxable. It also addresses nexus, voluntary disclosure agreements, registering in other states, and tax compliance issues when working in multiple states. The presentation aims to help A&E firms evaluate their tax exposure and compliance across different states.

1. FOR A&E FIRMS
WWW.CITRINCOOPERMAN.COM
TWO MAJOR
STATE TAX
ISSUES
EUGENE RUVERE, CPA, MST
Partner, State and Local Tax
914.949.2990
eruvere@citrincooperman.com
THOMAS A. WALSH, CMI
Director, State and Local Tax
212.225.9559
twalsh@citrincooperman.com

2. TODAY’S
AGENDA
SALES/USE TAX ISSUES
STATE INCOME TAX ISSUES
EVALUATING EXPOSURE
NEXUS
VDA AGREEMENTS
SECRETARY OF STATE REGISTRATIONS
CROSSING STATE LINES

3. “Services which require the
application of the art, science, and
aesthetics of design and construction
of buildings, groups of buildings,
including their components and
appurtenances and the spaces
around them wherein the
safeguarding of life, health, property,
and public welfare is concerned.
Such services include, but are not
limited to consultation, evaluation,
planning, the provision of preliminary
studies, designs, construction
documents, construction
management, and the administration
of construction contracts.”
SALES/USE TAX
ISSUES –
A&E SERVICES
A rchit ect ural services
are def ined as:
“Performing professional service
such as consultation, investigation,
evaluation, planning, design or
supervision of construction or
operation in connection with any
utilities, structures, buildings,
machines, equipment, processes,
works, or projects wherein the
safeguarding of life, health and
property is concerned, when such
service or work requires the
application of engineering principles
and data.”
Engineering services
are def ined as:
As defined by Education Law

4. SALES/USE TAX
ISSUES –
A&E SERVICES
“Rendering services for a fee or other valuable consideration, in the preparation and administration
of interior design documents (including drawings, schedules and specifications) which pertain to the
planning and design of interior spaces including furnishings, layouts, fixtures, cabinetry, lighting,
finishes, materials, and interior construction not materially related to or materially affecting the
building systems, all of which shall comply with applicable laws, codes, regulations, and standards.
The scope of work described herein shall not be construed as authorizing the planning and design
of engineering and architectural interior construction as related to the building systems, including
structural, electrical, plumbing, heating, ventilating, air conditioning or mechanical systems and shall
not be construed as authorizing the practice of engineering or architecture as described in article
one hundred forty-five or one hundred forty-seven of this title. The interior design plans as
described above are not to be construed as those required to be filed with local municipalities or
building departments as required by the state education law regulating the practices of architecture
or engineering.”
Int erior design services are
def ined as:
As defined by Education Law

5. CONTINUED
SALES/USE
TAX ISSUES
A&E SERVICES
- Architectural and/or engineering services (performed by a licensed
professional) are exempt from New York sales/use tax
- Renderings, blueprints and the like that require a licensed
professional to render them are considered incidental to the service
and are not subject to New York sales tax.
- If the rendering does not require a state license it is considered the
sale of tangible personal property and is subject to New York tax.

6. SALES/USE TAX
ISSUES
INTERIOR DESIGN
SERVICES
Taxable Interior design services include, but are not limited to:
• Preparation of layout drawings and specifications pertaining to the planning and
design of interior spaces,
• Furniture arranging,
• Design and planning of furniture, fixtures, and cabinetry,
• Staging,
• Lighting and sound design; and
• Selection, purchase, and arrangement of surface coverings, draperies, furniture, and
other decorations.

7. SALES/USE TAX
ISSUES
INTERIOR DESIGN
SERVICES
Taxable Interior design services are subject to New York sales tax even when performed
by engineers or architects.
• Exception: Interior design services are not subject to the 4.5% NYC sales tax (4.375%
NYS/MCTD only).

8. SALES/USE
TAX ISSUES –
SITUS OF SALE
- The point of delivery determines the sales tax rate that applies to a taxable sale of interior decorating and design services.
- When services are delivered by providing only renderings or plans, the sale is taxable where the plans are delivered to the purchaser.
- Where the services are delivered by providing only on-site advice, the sale is taxable at the location of the property where the on-site
advice is given.

9. SALES/USE TAX
AUDITS
A&E BUSINESSES
Sales Tax Audit Scope Encompasses Three Areas:
1. SALES
- Analysis of sales made and taxability
- Analysis of deposits to bank accounts and sales reported on sales tax returns
- Analysis of sales reported on federal/state income tax return and sales tax returns
- A sample period may be chosen to reduce time spent
2. FIXED ASSET PURCHASES
- Ensure that proper sales tax paid on purchases of furniture & fixtures, autos, office equipment et cetera
- Review use tax accruals for those instances where sales tax was not charged. Use tax should be reported on sales tax returns
- Analysis is always 100% review for entire audit period

10. SALES/USE TAX
AUDITS
A&E BUSINESSES
Sales Tax Audit Scope Encompasses Three Areas:
3. EXPENSE PURCHASES
- Ensure proper sales tax paid on purchases of operational expenses
- Ensure appropriate handling of project expense purchases
- Review use tax accruals for those instances where sales tax was not charged. Use tax should
be reported on sales tax returns
- A sample period may be chosen to reduce time spent

11. NEXUS
The minimum connection between a State
and a business which would permit the State
to subject a business (or its owners) to tax
and/or require the business to collect and
remit sales/use tax.
MINIMUM CONNECTION

12. NEXUS
- Different rules for different taxes
- Historical nexus laws did not contemplate current business
models
- Inaction by Congress and the U.S. Supreme Court (until
now regarding sales tax)
- Evolving laws that lack consistency among states
DIFFERENT RULES

13. THE “NEW NEXUS”
AFFILIATED
NEXUS
- Borders
AGENCY
NEXUS
- Scripto
- Amazon
ECONOMIC
NEXUS
- Geoffrey
“BRIGHT-LINE”
NEXUS

14. NEXUS LAWS
AFFECTING A&E
INDUSTRY
- Temporary presence and short-term assignments
- Use of independent contractors
- Use of remote employees

15. A&E INDUSTRY –
INCOME TAX ISSUES
Apportionment of Income -
Sourcing of Revenue
- Percentage Cost of Performance
- Greater Cost of Performance
- Market
- Mismatch of above could create double
taxation
Legal Entity
Differences
- C-Corporation
- S-Corporation
- LLC / Partnership

16. EVALUATING
EXPOSURE
COMPANY/PERSONAL
- Nexus
- Income / Gross Tax Receipts Tax
- Flow-through entities
- Residency credits
- Statute of limitations
- Sales and use tax
- Payroll matters
- Voluntary disclosure agreements

17. STATE VOLUNTARY DISCLOSURE
AGREEMENT (“VDA”)
- Eligible taxpayers who “come clean” and agree to comply with the program must:
- Report the taxes and interest they owe
- Enter an agreement to pay what they owe
- Agree to pay their taxes on time in the future
- In return, the State agrees to:
- Limit “look-back” period
- Waive penalties

18. Crossing State
Lines
- Secretary of State
- Department of Revenue
- Department of Labor
R egist rat ions
- State Income/Franchise/Gross
Receipts Taxes
- Local Income Tax and Business
Licenses
- Sales/Use Tax
- Payroll Tax
- Personal Property Tax
C ompliance

19. SECRETARY OF STATE REGISTRATION
- State laws require “foreign entities” doing business within their borders to “qualify to do business”
- Differences between Secretary of State “doing business” and tax nexus
- Connection to professional licensure

20. THANK YOU!
WWW.CITRINCOOPERMAN.COM
EUGENE RUVERE, CPA, MST
Partner, SALT
Citrin Cooperman
eruvere@citrincooperman.com
914.949.2990
THOMAS A. WALSH, CMI
Director, SALT
Citrin Cooperman
twalsh@citrincooperman.com
212.225.9559
HELPING YOU
FOCUS ON WHAT
COUNTS