Let’s connect!
HOT TOPICS / INSIGHTS Industry Insights

Sales and Use Tax for Art Collectors – A Family Office Primer

Ada Clapp and Quentin Marchal

6.22.21 | Industry Insights – Family Office

If you are a professional in the family office of an art collector, you likely already know the myriad issues that arise in connection with the purchase or sale of a work of art.  Not all family offices manage every aspect of the art purchase or sale (e.g., review of provenance, negotiation of terms, insurance, installation in the family member’s home, delivery to the buyer or from the seller, etc.).  With high-end art purchases, many of these tasks are outsourced to experienced specialists.  However, the obligation to manage (and minimize) the payment of sales and use taxes in connection with art purchases or relocations often falls squarely on the collector’s family office professionals.  In this Advisory, we provide general information about sales and use taxes we think you should be aware of before a family member purchases, rents or moves a work of art.  We hope it will help inform your discussions with the family and their outside advisors.

Sales Tax

As you likely know, most states impose a sales tax on the in-state sale of tangible personal property.  Tangible personal property generally includes works of art (this Advisory does not address the imposition of sales tax on sales of non-fungible tokens or “NFTs”).  As of this writing, the only states that did not have a general sales tax were Alaska, Delaware, Montana, New Hampshire, and Oregon.  In addition to a state sales tax, many local governments also levy a sales tax, which may be integrated with the state tax and administered by the state.

The rules for when a sales tax or an exemption therefrom applies vary from state to state, and it is important to understand the rules that apply to your particular situation.  For example, it makes sense that sales tax is not imposed on a gift of art from one family member to another, as a true gift is not a sale.  However, the analysis is not always so logical.  Most states, including New York, have expanded their definitions of what constitutes a “sale” for sales tax purposes to include the rental of tangible personal property.  This detail is often overlooked by estate planners when they advise collectors.  The issue arises when a trust owns a work of art that the creator of the trust (the “grantor”) wants to hang on his or her wall.  Many planners believe that if the grantor’s spouse is a trust beneficiary, the Trustee could permit the spouse to use the work rent-free and the grantor may enjoy the art while it is hanging in their shared residence.  However, if the grantor’s spouse is not a beneficiary (or there is no spouse), the grantor may be advised for tax reasons to rent the art from the trust at fair market rental.  In New York, that rental payment would be subject to sales tax.

New York goes even further in expanding its definition of a “sale” by considering an asset substitution with a grantor trust to be a sale subject to New York sales tax.  This is surprising, as such an asset substitution would not be considered a taxable sale for Federal or New York State income tax purposes.  As you may know, where a trust agreement gives the grantor a power to reacquire property held in the trust by substituting other property of equivalent value (an “asset substitution”), that trust and the grantor are treated as the same taxpayer for income tax purposes (the trust is referred to as a “grantor trust”).  What that means is that the grantor is treated as already owning the property held in the grantor trust from an income tax standpoint, so an asset substitution is a non-event for income tax purpose.  In the case noted above, where a grantor wants to use art held in a grantor trust, an advisor may suggest that the grantor simply exercise the substitution power and take the art.  However, such an asset substitution in New York would result in a sales tax.  This is because New York treats the grantor and the grantor trust as separate taxpayers for sales and use tax purposes and treats an asset substitution involving tangible personal property as a retail sale.  As you can see, it is highly important to understand what specifically constitutes a sale in the applicable jurisdiction, as the proposed solution could be a costly one.

In general, the amount of sales tax imposed is based upon the consideration paid for the goods or services sold.  In the case of an art purchase, the sale price would be the measure for sales tax.  Each state has its own variation of what constitutes consideration, which may include payment in cash, in-kind or by barter, such as payment with cryptocurrency.

Most states impose the obligation to collect the sales tax on the seller or the seller’s agent, such as an art dealer or auction house in the case of an art purchase.  Unless an exception to the sales tax applies, the seller should collect this tax from the buyer and remit it to the applicable taxing authorities.  If the seller fails to do so, in most states the obligation to pay the sales tax will ultimately fall upon the buyer.

Use Tax

In addition to a sales tax, many jurisdictions impose a complementary use tax.  The use tax is designed to prevent residents from avoiding their state’s sales tax by purchasing items in another state (having a lesser or no sales tax) and bringing these items to the state of residence for use there.  For example, if a New York resident purchases a work of art outside New York State, he or she will be subject to New York’s use tax when that artwork is brought into New York State.  The use tax levels the playing field between in-state sellers who must charge a sales tax and out of state sellers not required to charge a sales tax.

The use tax is generally measured in the same manner as the sales tax, that is, based upon the consideration paid to the seller.  However, it can sometimes be based upon the fair market value of the tangible property at the time it is brought into the state after it was purchased and used outside the state, which value may be less than the consideration paid.

In general, all states that impose a use tax apply a credit for sales or use tax previously paid to another state.  If the prior taxing state has a lower tax rate than the destination state, the buyer will pay a use tax to the destination state measured by the tax rate differential.  It is the purchaser’s (i.e., the collector’s) obligation to pay the use tax.

While most collectors are aware of the sales tax, they may be unpleasantly surprised by the use tax.  For example, a collector with multiple residences in different states is often unaware that a use tax may be due when he or she moves a work of art from one home to another.  This issue also arises where a collector, most recently in anticipation of increased tax rates, decides to change his or her domicile to a lower-tax state.  If the collector intends to take his or her art collection to the new state, it is important to know in advance whether a use tax will be due when the collection arrives in the new state.

Mitigating the Tax Liability

As noted earlier, exemptions from sales and use tax vary widely from state to state and tax savvy collectors take advantage of the interplay between state statutes and regulations.  Before a family member enters into an art transaction, you should ascertain whether a tax exemption applies or whether the transaction may be structured to avoid, reduce or postpone sales and use taxes.


As a practical matter, some sales tax exemptions, such as the purchase for resale exemption may not be available to your average collector who is not purchasing a work of art with a mind to reselling it, even if the work is eventually resold.  States sometime apply the resale exemption in very narrow circumstances.  New York, for example, has denied the resale exemption where art was purchased for both display and resale because it was not purchased exclusively for resale.

However, the vast majority of states, including California and Florida, exempt from sales tax “casual” or “garage” sales of art.  This exemption typically applies to an occasional sale of artwork by a person who is not regularly engaged in the business of retail art sales.  It may be possible for a collector to rely on this exemption in the case of a private sale, but care should be taken to ensure that the state’s requirements for a casual sale are strictly met.  In some states, such as New York, this exemption is so limited in scope that it will not be available in the case of a sale of fine art.

Purchase for Use in Another State

If art is purchased in a “destination tax” state for use in another state, sales and use tax may be avoided or reduced.  Destination tax states generally only impose sales tax on items “delivered” in the state (a use tax may be due upon arrival in the destination state).  What constitutes delivery, the point at which title and/or possession is transferred from seller to buyer, can be very nuanced.  Take New York for example: if a collector buys art in New York, no New York sales tax will be due if the art is shipped to another state directly by the seller, or if the collector arranges for delivery, the art is shipped via a common carrier (such as the U. S. Postal Service, FedEx, or UPS).  If instead the collector contracts with a private art shipper to transport the work (as is typical for valuable or fragile artwork), New York takes the position that the art was delivered to the collector’s agent in New York and imposes a sales tax.  This is an important fact to be aware of as the New York buyer will want to ensure that the seller is responsible for shipping the art out of state.  The seller is of course free to seek the collector’s recommendation of preferred art shippers that the seller may wish to hire.

With respect to the use tax, some states do not tax tangible personal property purchased for use in another state and later brought into the state.  Other states will impose a use tax on such property regardless of where it was intended to be first used or if it was in fact first used in another state before being brought into the taxing state.

Thus, depending upon the collector’s state of residence, an out of state art purchase may be structured to avoid sales and use tax entirely.  For example, a California collector can avoid sales and use tax on an out of state art purchase if the artwork is shipped directly to a museum in a state with no sales or use tax, such as the Jordan Schnitzer Museum of Art in Oregon, and is displayed there for more than 90 days before being shipped to the collector’s home in California.  This is because California does not impose a use tax on an item purchased with the intention of first using it outside the state and California presumes that such was the purchaser’s intention if the property is initially used out of state for more than 90 days after purchase.  This structure won’t work however for collectors who live in a state, such as New York, that does not offer a similar first use exemption.

“American Freeports”

To avoid or delay paying sales or use tax, some collectors will ship a purchase directly to a freeport to be stored there until the collector decides to ship it to a new location.  While the art sits in the freeport, it is not subject to sales or use taxes.  A use tax may be due when the art is shipped from the freeport to its ultimate destination.  Technically, a freeport is a storage facility with a particular designation that also enables its clients to avoid import tax and duties when they ship art to it from abroad.  Because fine art storage facilities in a state with no use tax (such as Delaware) offer the domestic purchaser a similar respite from use tax, they are sometimes referred to as “American freeports”.  These facilities are highly secure, temperature and humidity controlled, fortresses designed especially for the storage of highly valuable art and to cater to the needs of the owners of such art.  Using such a facility can be a smart option for say, a collector who can’t decide in which home to hang the art, or who owns more art than wall space and would be storing the new purchase in any event.

Create an Intangible

For collectors who live in states that do not tax transfers of intangible property, it may be possible to avoid sales tax by “converting” works of art into intangible property, which is then sold or exchanged (e.g., in an asset substitution) in lieu of the artwork itself.  The first step would be to contribute the art to an entity, such as a partnership or a limited liability company, in exchange for an ownership interest in the entity.  For this transaction to work, the resident state must not tax the collector’s contribution of art to the entity as a sale and must also treat ownership interests in the entity as intangible property.  As you can imagine, going this route requires extremely careful and complex planning.  Certain factors (e.g., a valid business purpose, observance of formalities, relevant activities, etc.) may need to exist in order for the resident state to recognize the entity as a “legitimate” entity so that ownership interests therein constitute intangible property.  You will want to engage a competent estate planning attorney to advise on this option, which may be simply unavailable in the collector’s particular situation.


Many states and localities aggressively enforce their sales and use tax laws and ensuring compliance with these laws is often the responsibility of the collector’s family office.  It is therefore essential for professionals of a collector’s family office to understand the intricacies of the rules in each jurisdiction in which a family member will purchase, sell or use a work of art.  Having this knowledge will better enable the family office to ensure that family members comply with applicable sales and use tax laws and help them minimize these taxes.

Ada Clapp is a Senior Principal in the Personal Wealth Services and Family Office Services practices of Berdon. Quentin Marchal is a Tax Associate in Berdon’s State and Local Tax practice.

Berdon offers individuals, as well as family-owned and privately held businesses, a comprehensive set of professional services to help them achieve their strategic business and financial objectives.

Questions: Contact your Berdon advisor.