It’s another taxing lesson in Sales Tax – Christie’s’ recent $16.7 million settlement to avoid prosecution for sales tax evasion has demonstrated once again that sales tax compliance continues to be the bane of the art market.
Since 2003, the New York County District Attorney’s Office and the New York State Attorney General’s Office, working closely with the New York State Department of Taxation and Finance, have regularly targeted auction houses, dealers, and collectors who have failed to collect and pay sales and use taxes on sales of multi-million dollar works of art. What is different now is that these prosecutions are occurring more frequently.
With the coronavirus wreaking havoc on local economies and pressure mounting to fill depleted state and local government coffers, we can only expect law enforcement increasingly to target art dealers who run afoul of their sales and use tax compliance obligations.
Art dealers, therefore, should not underestimate the importance of careful compliance with their withholding obligations, particularly when relying on one of the most common reasons for not collecting sales tax – lack of ‘nexus’, or local tax presence – unless they are willing to risk becoming the latest party surprised to learn that this is an easily detectable infraction.
In many states, including New York, sales tax is a destination tax: the duty to pay the tax to a state is determined based upon the point where the artwork is physically delivered to the buyer or the buyer’s designee. While liability for sales tax ultimately rests on the buyer, the dealer who has delivered the work of art typically acts as a trustee for the state and is required to collect the sales tax and remit it to the state. In this role, the dealer may also become personally liable for the tax.
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May 23, 2020