diff --git a/.changelog/31826.txt b/.changelog/31826.txt
new file mode 100644
index 00000000000..2cb06c5aa43
--- /dev/null
+++ b/.changelog/31826.txt
@@ -0,0 +1,3 @@
+```release-note:bug
+provider/default_tags: Fix perpetual diff when identical tags are moved from `default_tags` to resource `tags`, and vice versa
+```
\ No newline at end of file
diff --git a/internal/service/ec2/vpc_test.go b/internal/service/ec2/vpc_test.go
index 571eedf1356..d5258670e23 100644
--- a/internal/service/ec2/vpc_test.go
+++ b/internal/service/ec2/vpc_test.go
@@ -523,6 +523,52 @@ func TestAccVPC_DefaultTagsProviderAndResource_duplicateTag(t *testing.T) {
 	})
 }
 
+func TestAccVPC_DefaultTagsProviderAndResource_moveDuplicateTags(t *testing.T) {
+	ctx := acctest.Context(t)
+	var vpc ec2.Vpc
+	resourceName := "aws_vpc.test"
+
+	resource.ParallelTest(t, resource.TestCase{
+		PreCheck:                 func() { acctest.PreCheck(ctx, t) },
+		ErrorCheck:               acctest.ErrorCheck(t, ec2.EndpointsID),
+		ProtoV5ProviderFactories: acctest.ProtoV5ProviderFactories,
+		CheckDestroy:             nil,
+		Steps: []resource.TestStep{
+			{
+				Config: acctest.ConfigCompose(
+					testAccVPCConfig_tags1("overlapkey", "overlapvalue"),
+				),
+				Check: resource.ComposeTestCheckFunc(
+					acctest.CheckVPCExists(ctx, resourceName, &vpc),
+					resource.TestCheckResourceAttr(resourceName, "tags.%", "1"),
+					resource.TestCheckResourceAttr(resourceName, "tags_all.%", "1"),
+				),
+			},
+			{
+				Config: acctest.ConfigCompose(
+					testAccVPCConfig_basic,
+					acctest.ConfigDefaultTags_Tags1("overlapkey", "overlapvalue"),
+				),
+				Check: resource.ComposeTestCheckFunc(
+					acctest.CheckVPCExists(ctx, resourceName, &vpc),
+					resource.TestCheckResourceAttr(resourceName, "tags.%", "0"),
+					resource.TestCheckResourceAttr(resourceName, "tags_all.%", "1"),
+				),
+			},
+			{
+				Config: acctest.ConfigCompose(
+					testAccVPCConfig_tags1("overlapkey", "overlapvalue"),
+				),
+				Check: resource.ComposeTestCheckFunc(
+					acctest.CheckVPCExists(ctx, resourceName, &vpc),
+					resource.TestCheckResourceAttr(resourceName, "tags.%", "1"),
+					resource.TestCheckResourceAttr(resourceName, "tags_all.%", "1"),
+				),
+			},
+		},
+	})
+}
+
 // TestAccVPC_DynamicResourceTagsMergedWithLocals_ignoreChanges ensures computed "tags_all"
 // attributes are correctly determined when the provider-level default_tags block
 // is left unused and resource tags (merged with local.tags) are only known at apply time,
diff --git a/internal/tags/key_value_tags.go b/internal/tags/key_value_tags.go
index dfb8b5de6c4..372e5e70613 100644
--- a/internal/tags/key_value_tags.go
+++ b/internal/tags/key_value_tags.go
@@ -749,27 +749,37 @@ type schemaResourceData interface {
 	GetRawState() cty.Value
 }
 
+// tagSource is an enum that identifiers the source of the tag
+type tagSource int
+
+const (
+	configuration tagSource = iota
+	plan
+	state
+)
+
+// configTag contains the value and source of the incoming tag
+type configTag struct {
+	value  string
+	source tagSource
+}
+
+// ResolveDuplicates resolves differences between incoming tags, defaultTags, and ignoreConfig
 func (tags KeyValueTags) ResolveDuplicates(ctx context.Context, defaultConfig *DefaultConfig, ignoreConfig *IgnoreConfig, d schemaResourceData) KeyValueTags {
 	// remove default config.
 	t := tags.RemoveDefaultConfig(defaultConfig)
 
+	cf := d.GetRawConfig()
+	configExists := !cf.IsNull() && cf.IsKnown()
+
 	result := make(map[string]string)
 	for k, v := range t {
 		result[k] = v.ValueString()
 	}
 
-	configTags := make(map[string]string)
-	if config := d.GetRawPlan(); !config.IsNull() && config.IsKnown() {
-		c := config.GetAttr("tags")
-		if !c.IsNull() && c.IsKnown() {
-			for k, v := range c.AsValueMap() {
-				configTags[k] = v.AsString()
-			}
-		}
-	}
-
-	if config := d.GetRawConfig(); !config.IsNull() && config.IsKnown() {
-		c := config.GetAttr("tags")
+	configTags := make(map[string]configTag)
+	if configExists {
+		c := cf.GetAttr(names.AttrTags)
 
 		// if the config is null just return the incoming tags
 		// no duplicates to calculate
@@ -778,33 +788,37 @@ func (tags KeyValueTags) ResolveDuplicates(ctx context.Context, defaultConfig *D
 		}
 
 		if !c.IsNull() && c.IsKnown() {
-			for k, v := range c.AsValueMap() {
-				if _, ok := configTags[k]; !ok {
-					// config tags can be null values. Ignore.
-					if !v.IsNull() {
-						configTags[k] = v.AsString()
-					}
-				}
-			}
+			normalizeTagsFromRaw(c.AsValueMap(), configTags, configuration)
 		}
 	}
 
-	if state := d.GetRawState(); !state.IsNull() && state.IsKnown() {
-		c := state.GetAttr("tags")
+	if pl := d.GetRawPlan(); !pl.IsNull() && pl.IsKnown() {
+		c := pl.GetAttr(names.AttrTags)
+		if !c.IsNull() && c.IsKnown() {
+			normalizeTagsFromRaw(c.AsValueMap(), configTags, plan)
+		}
+	}
+
+	if st := d.GetRawState(); !st.IsNull() && st.IsKnown() {
+		c := st.GetAttr(names.AttrTags)
 		if !c.IsNull() {
-			for k, v := range c.AsValueMap() {
-				if _, ok := configTags[k]; !ok {
-					configTags[k] = v.AsString()
-				}
-			}
+			normalizeTagsFromRaw(c.AsValueMap(), configTags, state)
 		}
 	}
 
 	for k, v := range configTags {
 		if _, ok := result[k]; !ok {
 			if defaultConfig != nil {
-				if val, ok := defaultConfig.Tags[k]; ok && val.ValueString() == v {
-					result[k] = v
+				if val, ok := defaultConfig.Tags[k]; ok && val.ValueString() == v.value {
+					// config does not exist during a refresh.
+					// set duplicate values from other sources for refresh diff calculation
+					if !configExists {
+						result[k] = v.value
+					} else {
+						if v.source == configuration {
+							result[k] = v.value
+						}
+					}
 				}
 			}
 		}
@@ -813,6 +827,7 @@ func (tags KeyValueTags) ResolveDuplicates(ctx context.Context, defaultConfig *D
 	return New(ctx, result).IgnoreConfig(ignoreConfig)
 }
 
+// ResolveDuplicatesFramework resolves differences between incoming tags, defaultTags, and ignoreConfig
 func (tags KeyValueTags) ResolveDuplicatesFramework(ctx context.Context, defaultConfig *DefaultConfig, ignoreConfig *IgnoreConfig, resp *resource.ReadResponse, diags fwdiag.Diagnostics) KeyValueTags {
 	// remove default config.
 	t := tags.RemoveDefaultConfig(defaultConfig)
@@ -860,3 +875,16 @@ func ToSnakeCase(str string) string {
 	result = regexp.MustCompile("([a-z0-9])([A-Z])").ReplaceAllString(result, "${1}_${2}")
 	return strings.ToLower(result)
 }
+
+func normalizeTagsFromRaw(m map[string]cty.Value, incoming map[string]configTag, source tagSource) {
+	for k, v := range m {
+		if !v.IsNull() {
+			if _, ok := incoming[k]; !ok {
+				incoming[k] = configTag{
+					value:  v.AsString(),
+					source: source,
+				}
+			}
+		}
+	}
+}