If you saw last week's episode of Billions (Season 4, Episode 10: New Year's Day on Showtime), you will recall main character Axe strategizing with sales and use tax on art. In the episode, Axe is told that a number of paintings that he purchased at the Art Basel art fair in Switzerland are being delivered to his New York office and that he will consequently owe US $75 million in New York use tax.
Upon hearing this news, Axe re-routes an already delivered painting and other not yet delivered paintings to what he is told is a "freeport" storage facility in a private airport in Newburgh, New York, where he is advised he will be shielded from New York use tax exposure.
Axe was correct in stating that if he took possession of the paintings in New York he would be subject to New York use tax, but the episode's seemingly straightforward tax planning to keep the art in New York yet avoid the New York use tax is pure fiction. As a reminder, New York sales and use tax is a destination tax and is chargeable based on the delivery of a painting into New York – whether it be to an office or a storage facility. In the United States, the concept of a "freeport" relates to a zone where goods can be transported and not subject to customs duties. It is a federal concept, that does not change the state sales and use tax analysis.
When planning for US sales and use tax exposure, a state-by-state analysis must be conducted because some US states do not impose a sales and use tax (e.g., Delaware) while others do impose a sales and use tax (e.g., New York). Lastly, we note that on a federal level, upon import into the US, paintings are subject to a zero rate customs tariff, which is sometimes confused with sales and use tax compliance.
Axe's tax planning would have worked if he had never received the one painting in his New York office and had all of the paintings directly shipped by the galleries from Art Basel to a storage facility in a state like Delaware, which does not have a state sales and use tax. However, any later relocations of the art by Axe to other states, like New York, would then still potentially become subject to that state's use tax.
If you have any questions about US state sales and use tax on art or art storage, please reach out to the Withers' Art Team.
For more information on New York state's sales and use tax, please click here.