Art Dealers and New York State Sales Rules

The New York Attorney General’s office announced that Larry Gagosian, a New York art dealer, agreed to pay $4.3 million in unpaid sales taxes, including interest and penalties, for art that was sold and shipped to New York through his California affiliate company as well as other sales made in New York.  It was estimated that he sold and shipped over $40 million worth of art between 2005 and 2015 without charging the appropriate state and local sales tax.  New York State tax investigators were able to examine the accounting records of the California affiliate since Gagosian was a shared owner of both companies.  New York tax authorities are taking a harder look at money that funnels through the state as a result of the art dealing and collection business.

New York State sales tax is a ‘destination tax,’ meaning that whether a sale is subject to New York State sales tax, and the rate of tax that applies, is based on the location where the property or services are delivered by the seller to the purchaser or the purchaser’s designee.  A sale is subject to New York State sales tax when the point of delivery or transfer of possession is located in New York State.  Additionally, if tangible personal property is delivered or transferred to the possession of a purchaser’s agent, representative, employee or other designee (such as a private or contract carrier hired by the purchaser), then the location of the site of transfer is used for determining if sales tax is due, regardless of the ultimate destination of the product.  It is this final rule which has been a pitfall for art dealers in New York.

Normally, vendors who sell taxable goods or services in New York State or who have sufficient business or solicitation within the state must register with the New York State Tax Department to collect and remit sales tax.  Art dealers who are registered within the state will often deal with customers from other states and other countries entirely and assumed that since the ultimate destination of the art was outside the state, they would not have to collect sales tax on the purchase.  However, since many buyers utilize private or contract carrier services for expensive or unique art pieces, the law states that once that tangible property transfers from the vendor to the buyer’s designee within New York State, it is subject to New York State sales tax.  The liability to remit sales tax is on the vendor and where that vendor fails to collect the appropriate amount of sales tax from the purchaser, they are still liable to remit the amount owed to the New York State Tax Department.

For buyers of art, it is important to note the rules regarding use tax.  New York State use tax is a tax imposed on taxable items or services used in New York when the sales tax has not been paid.  Therefore, if you are a New York State resident and you purchase artwork outside the state and have it delivered for use in New York, you must pay the appropriate use tax owed to the New York State Tax Department.  For sales and use tax purposes, an individual is a New York State resident if he or she maintains a dwelling (e.g. home, apartment, dorm room) for their use whether or not owned by that individual.  The definition of a resident is broader for New York States sales and use tax purposes than it is for New York State personal income tax purposes.  Therefore, a person may be a resident for sales and use tax purposes even though not a resident for personal income tax.