ARTnewsletter Archive

Nonprofits Lose Selling Edge As State Imposes Sales Tax

A new 8¼ percent New York State sales tax on items sold at auction by museums and other tax-exempt organizations recently came into effect, adding to the 12-to-25 percent buyer’s premium on the hammer price and subjecting nonprofits to the same sales tax as other consignors.

NEW YORK—A new 8¼ percent New York State sales tax on items sold at auction by museums and other tax-exempt organizations recently came into effect, adding to the 12-to-25 percent buyer’s premium on the hammer price and subjecting nonprofits to the same sales tax as other consignors.

Museum directors and others have criticized the change. Louis Grachos, director of the Albright-Knox Art Gallery, Buffalo, N.Y., said adding the sales tax “takes a tool away from the nonprofit world whose role is to provide services to the public. We don’t ask for-profit businesses to provide those services, so I think what New York State did was ill-advised.”

The sales tax and other modifications to state tax policy regarding nonprofit institutions were part of an executive budget proposal from governor David Paterson’s administration, and were included in a revenue bill passed by the state legislature last summer, according to Susan Burns, spokesperson for the New York State Depart­ment of Taxation and Finance. “The aim was certainly to raise revenues,” Burns told ARTnewsletter.

The new rules may limit the willingness of buyers to “bid as high as they might otherwise have bid,” according to Jo Backer Laird, an attorney at Patterson Belknap Webb & Tyler, New York, and former senior vice president and general counsel at Christie’s auction house. “If you have to pay the sales tax, it eats up money that you would have otherwise put into the hammer price.” She 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.”

Ford Bell, president and CEO of the American Association of Museums, said the tax may also curtail demand from other nonprofits wishing to acquire artworks at auction. The tax payment, Bell said, “is extra money that institutions, which are strapped for money these days, are going to have to pay.”

The tax applies to both U.S. and foreign buyers, according to Burns. It will also apply to sales made by out-of-state museums—such as the J. Paul Getty Museum, Los Angeles, or the Museum of Fine Arts, Boston—at auctions held in New York.

“The auction house making the sale in New York is a vendor and required to charge and collect tax from the buyer,” Burns said. “Our Taxpayer Guidance staff indicate that the out-of-state owner could potentially have a responsibility for the tax if not collected by the auction house.” However, she added, “we would need a lot more information about the nature of the consignment agreement” between the auction house and the nonprofit consignor in order to make a determination.

Another change to the law that recently came into effect involves applying the sales tax to nonprofit organizations that hold charity auctions on their own property. Public television stations, for example, regularly hold benefit auctions during their fundraising campaigns. Under the old rules, none of the items sold in such an auction were subject to the sales tax. Under the new rules, if the station holds no more than two charity auctions in a given year, the proceeds of those sales are not subject to tax. If the station holds three or more auctions, it must pay sales tax for all of them; if the station plans to hold no more than two auctions for the year but then adds a third or more, however, it would be required to pay sales tax only for the additional auctions.

Since last September, sales of items by a museum either online or through a catalogue have also been subject to tax. Previously only sales at museum gift shops were taxed.

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