Withers Bergman says avoid heavy taxes and legal problems by understanding new wrinkles to old art laws.
New changes to laws related to collecting art can catch the unaware off-guard. Christine Steiner, counsel of New York-based law firm Withers Bergman, says they can lead to heavy taxes and wasted hours in court. There are two laws in particular to keep in the back of the mind before buying or selling art.
As we reported last year, New York has suddenly become aggressive about collecting the state sales tax associated with buying art. It recently established with the Gagosian Settlement—a case between New York state and the Gagosian Gallery—that out-of-state buyers are subject to the state sales tax, at 4%, if they are personally taking responsibility for the shipping and commissioning a specialized fine art shipper to transport the artwork.
At stake is what they call the “first-use” of personal property—the rule in effect states that the local state or city tax, or VAT if purchased in, say, Europe, is imposed only when the buyer takes actual possession of the work, and not while the work is in transit to its ultimate destination. The new interpretation of this rule is that by taking control of the shipping while the work is still at a New York gallery, and not using the gallery’s own network of shippers, the buyer has in effect taken possession of the work and is subject to the state sales tax.
“That threw a curve ball in the art world,” says Steiner, because sophisticated art collectors are used to shipping the artwork themselves. So the only sure way to avoid paying New York state’s sales tax, even when buying electronically, is by deferring to the seller to ship the artwork to you, she says, so you are not legally or financially responsible for the work until it has actually arrived at your doorstop. Then, of course, the “first use” rule kicks in, you have taken possession of the work, and that means you pay the local sales tax—in all likelihood lower than that of New York’s.
Then there is the HEAR Act, which relates to lost artworks from the Holocaust era. That allows people to file a claim when they believe an individual, gallery, or museum possesses an artwork that belonged to their family and was confiscated by the Nazis. President Obama passed a national law before he left office, giving such people six years to file a claim from the time they discover that the artwork is theirs. Before, states had their own laws to tackle the issue, but the HEAR Act created a uniform rule nationally to handle this universe of artworks. The artworks were mostly taken between 1933 to 1935, but the looting also took place throughout the war. “The Nazis were punctilious record-keepers, so most of the works were returned after the war, but because there was a huge scale of artworks [stolen], they are still being returned,” Steiner says.
So here’s the lesson: Before purchasing a piece, investigate and see if there’s a gap in provenance in the war years. If so, you might be looking at a piece belonging to someone else. If you discover that you own artwork missing war years’ provenance, then you can report the discrepancy and negotiate with heirs in advance of case claims getting filed. The advantage of that is you avoid a legal battle in court. And if you think someone else owns artwork belonging to you, then take slow, careful measures, but be sure to act within six years from the moment you find out. The clock is ticking.