Call it a "revenue enhancement" that may have the effect of lowering the amount of money that museums receive when they sell artwork. As of January 1, New York state began collecting sales tax on items that museums and other tax-exempt organizations sell at outside auction houses. The 8¼% tax is now applied to items sold by nonprofit New York institutions at auction houses such as Christie's and Sotheby's, adding to the buyer's premium that already places a 12% to 25% surcharge on the hammer price.
Previously, objects sold at outside auction houses by tax-exempt organizations and institutions were not subject to the sales tax. The change in the tax regulations was part of a revenue bill passed by the state legislature last summer and amended in December, according to Susan Burns, spokeswoman for the New York State Department of Taxation and Finance. "You might say the legislature wanted to close loopholes. The aim was certainly to raise revenues."
Prior to the new rules, for instance, objects sold in a museum gift shop were subject to the state sales tax, but the same items sold by the museum through a catalog or on line were not. That difference has now been eliminated.
Another change is that sales tax now applies when nonprofit organizations hold more than two annual charity auctions on their own property. Public television stations, for example, regularly hold benefit auctions during their fund-raising campaign drives. Under the old rules, none of the items sold were subject to the sales tax. Now, if the station regularly holds two charity auctions and then adds a third, sales from that third one would be subject to a sales tax. If the station regularly holds more than two auctions for the year, sales at all the auctions are subject to sales tax.
The new rules are particularly worrisome to art museums that sell deaccessioned items at auction houses, because the increased cost may inhibit the willingness of buyers to bid as high as they might otherwise have bid, according to Jo Backer Laird, a Manhattan lawyer who specializes in art and museum law. "If you are someone sitting in the auction salesroom, calculating how much you can afford to pay for something, you have to figure in not only the hammer price but also the auction house premium and the sales tax," she said. "If you have to pay the sales tax, it eats up money that you would have otherwise put into the hammer price."
Laird called the absence of the sales tax "an incentive for people to bid at higher levels for objects sold by exempt organizations. It was also a benefit for those organizations, as they got to keep more of the proceeds of the sale."
A spokesman for Christie's dismissed the concern, claiming that "offering a work of art at auction is traditionally the best way to achieve the highest price anyone at a given moment in time is willing to pay. All interested parties can participate, and the price will consequently rise to the highest level the market is willing to pay, maximizing the results for the consignor, including museums. As such, we believe museums and other tax-exempt organizations will continue to take advantage of our auction rooms."
The tax applies to all buyers in the United States, although not to all foreign collectors, Burns said, depending upon where they live and where the objects will be placed.
In an unrelated development, the Metropolitan Museum of Art has begun closing 15 of its satellite merchandise shops around the country as part of a cost-containment restructuring. The merchandise will continue to be sold through the museum's mail order catalog and on line.
(c) 2009 Maine Antique Digest
by Daniel Grant
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