In this instance, you are legally exempt from paying sales or use tax. But the specifics can get tricky, and sit at the crux of Schneiderman’s tax probe. Essentially, Schneiderman is alleging that hundreds of artworks purchased exclusively for resale, and therefore incurring no sales or use tax, were hung in homes and businesses. The probe interprets this as qualifying the artworks as having been used. And that is not allowed. As the AG put it in a statement, “Art buyers may not avoid sales or use tax simply by claiming that artwork they enjoy at home is intended for resale.”
One figure who has attracted the AG’s attention is Aby Rosen, a prominent real estate developer. Rosen will fork over $7 million to settle allegations that he inappropriately avoided paying sales tax on $80 million in art purchases. The settlement applies to 200 works of art that Rosen bought or commissioned through separately established companies from 2002 to 2015. Though he’s paying up, Rosen ardently denies Schneiderman’s charges, and the settlement comes with no admission of wrongdoing. The mogul chalks the AG’s zealousness up to the desire to fill state coffers and, perhaps more importantly, a failure to recognize that Rosen’s apartment and office are places of business where works for sale are being shown. While this may be true, tax authorities raise an eyebrow at such an interpretation. “You’re only permitted to use a resale certificate to get the exemption from sales tax if you’re planning to exclusively use the work for resale,” explains Diana Wierbicki, Partner and Global Head of Art Law at Withers Bergman LLP. “That’s the key term New York keeps focusing on.”
The other settlement so far is with Victoria Gelfand, a Gagosian director. (Gelfand’s transactions in question were private and the gallery isn’t implicated.) Gelfand set up two companies and purchased 31 works totalling over $1 million. She claimed the pieces were for resale. But some were shown in Gelfand’s home, and it is those works that are covered by her $210,000 settlement. Gelfand’s lawyer notes her client doesn’t “necessarily agree” with Schneiderman’s allegations.
“Exclusively for resale” can seem an uncertain hurdle to jump for those in the art market, where a home isn’t an absurd place to make a transaction. “You have an industry that is accustomed to marketing art in a personal setting, which makes sense because most of your buyers will be buying it for a personal setting,” says Wierbicki. Trouble also brews for those looking to deal art on the side. “If you have a secondary business where you’re an art dealer, you may not have a gallery in which to display works. If you don’t have that, where else are you supposed to show [works] to a client?” asks Wierbicki. As the investigations continue, it’s possible that Schneiderman’s rationale will become more clear cut and collectors and dealers will be able to act accordingly. Don’t use your house as a gallery seems to be the overriding message thus far, and, as always, document transactions carefully. (Wierbicki has more good advice in Forbes