Fine Art + Use Tax = ?
By Jennifer Young When you buy artwork, you invest in your future appreciation in several senses—enjoyment of sheer beauty, support of artists and other makers, and potential literal value appreciation. The investment has several costs besides the payment for the work of art itself: commissions, shipping, insurance, and potentially sales tax on the purchase. An Ashland, California buyer may pay over 10% in com- bined California and local sales taxes while an Idaho buyer will pay 6%. Montana and Oregon buyers pay no tax as these states do not have a sales tax. States with sales taxes also impose “use tax” on purchases made with- out paying sales tax. As an example, an Ashland, California resident who buys furniture while in Ashland, Oregon pays no sales tax on the purchase, as Oregon has no sales tax. However, California laws require that the resident report this purchase and pay all applicable state and local sales taxes. Other states have similar rules—taking ownership of taxable property in another state does not eliminate sales tax, even if the seller doesn’t collect it on the original sale. Some states, however, provide exceptions. Setting up a nonprofit such as a private art museum may allow works of art to be purchased without paying sales tax. This may be suitable for large collections, and can pro- vide some additional tax benefits beyond sales tax savings, but what if you are purchasing just a few pieces as gifts for others or for enjoyment in your home? In this case, lending your artwork to a public museum if properly structured may allow you to purchase art without incurring a sales tax obligation. Here’s how it can work: 1. You plan to purchase a piece of art. 2. You arrange with a museum in a state that does not impose sales taxes to exhibit your artwork for a period of time. Currently, Del- aware, Montana, New Hampshire, and Oregon are the four states without a sales tax. (Alaska is often included in this list, and Alaska has no state-level sales tax, but several local jurisdictions in Alaska impose sales taxes—sometimes at rates higher than other state’s sales tax rates.) 3. Upon purchase and before you take possession of the art, it is sent to the museum on loan. 4. Your art is exhibited for a period of time. 5. When you first take possession in your own state, this possession isn’t considered “first use” and is therefore not subject to sales tax. Several museums including the Delaware Art Museum in Wilmington, Delaware; the Hood Museum of Art in Hanover, New Hampshire; the Jor- dan Schnitzer Museum of Art in Eugene, Oregon; and the Portland Art Museum in Portland, Oregon, have all exhibited private works on loan. In 2023, the Portland Art Museum hosted Sandro Botticelli’s Madonna of the Magnificat, which had been purchased by a private collector from the estate of the late Paul Allen. Of course, it’s not known whether the owner is even subject to sales tax, let alone whether the loan was structured under sales tax rules, but the Magnificat is a recent example of significant artworks purchased by private collectors and exhibited under temporary loan. The Jordan Schnitzer Art Museum posts information regarding its Shared Visions program on its website. Works on display in Septem- ber 2023 include Jean-Michael Basquiat’s Valentine and Henry Taylor’s From Congo to the Capital, and black again. While the process described above may sound complex on its own (it is) there are many other factors to consider. It is important to confer with your tax advisor regarding specific tax implications in your state as they
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vary from state to state and change from time to time. If you determine it’s a good option, since it is essential to place the art before your state considers you to have first use, discussions with the museum should be- gin early. There may be additional costs associated with the exhibition, such as additional shipping and handling charges, security, insurance, and storage if the museum can’t exhibit the work directly after your pur- chase, among others. It’s also important to note that the IRS doesn’t al- low a deduction for the use of the art. Along with the financial and tax implications, you may want to consider non-financial aspects such as the exhibition context and any information the museum intends to provide with the artwork. You may want to in- clude your legal counsel regarding these aspects and to review terms of the loan. If you reach an agreement, you can receive sales tax benefits, as well as the knowledge that you have provided the public what may be one last look at a masterpiece. An example of a Francis Bacon painting at the Museu de Arte Contemporânea - Coleção Berardo (above). Francis Bacon’s Three Studies of Lucian Freud triptych was sold in November 2013 for US$142.4 million to collector Elaine Wynn, which at the time was the highest price attained at auction for a work of art when not factoring in inflation. It was housed at Portland Art Museum before heading to its final destination. It is estimated that nearly $11 million in use tax would be avoided by displaying the artwork in Oregon, however details are known only to the collector.
Jennifer Young, CPA Director | Moss Adams
Jennifer has provided tax assistance to large multistate companies since 2002. She delivers state income, franchise, sales, Oregon CAT, Portland CES, Washington B&O, and property tax experience in multiple industries, with a specialization in transportation and logistics.
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