How Art Collectors Can Stay Out Of Tax Trouble In New York

Given that the art market is a multi-billion dollar industry and that so many of the world’s art sales and purchases take place in New York State (at record-breaking prices), it is no wonder that cash-strapped state authorities are broadly searching for instances of tax evasion in the art world. We are seeing a tremendous increase in audits and investigations in this area and two recent settlements show the investigations are resulting in the payment of millions of dollars to the state.  With results this profitable, it is likely that NYS investigations of art transactions will continue.

NYS is currently focusing on the use of resale certificates (which exempt a purchase from sales tax) in connection with art purchases. Under New York’s tax law, items purchased for resale must not be used for any other purpose, meaning personal enjoyment is a prohibited use. A person need not have the intent to evade a tax to be in violation of this law and may innocently fail to comply with the law simply by not knowing its complicated rules.  Bottom line? null

On May 3rd of this year,  NYS Attorney General Eric Schneiderman released the following statement: “We are committed to rooting out tax abuses wherever we find them, especially in the art world, where the difference can be hundreds of thousands — if not millions — of dollars in lost tax revenue per sale. When art collectors don’t pay their fair share, law abiding New Yorkers should not be stuck footing the bill.” Strong words that are being backed-up with strong action.

New York Attorney General Eric Schneiderman is on the hunt for tax abuses in the art world. (Photo by Eduardo Munoz Alvarez/Getty Images)

The two settlements recently in the press involve the well-known real estate investor Aby Rosen and art sales executive Victoria Gelfand.  It was reported that they each own companies essentially formed to buy and sell art using resale certificates; they purchased art that was used for something other than resale; and the conditions of their settlements with NYS include future sales and use tax compliance.

In Rosen’s case, his companies were used to purchase and commission 200 works of art (all but one of which were acquired with a resale certificate) for a total of $80 million from 2002 through 2015.  The art was used for the purpose of Rosen’s enjoyment at his personal residences and to enhance his real estate company’s brand by displaying the art in his offices.  According to the Attorney General, Rosen should have paid sales tax on each artwork when purchased or, alternatively, if the art was originally intended to be resold, sales tax should have been paid at the point the use of the art “diverted” to an ineligible use.  Rosen settled with NYS for $7 million.

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