When it comes to Taxes, Ignorance is far from Bliss
Jan 3, 2017
Taxes are waiting for you around every corner. In fact, sales taxes vary by state and rates can reach 10% of a selling price depending on the city/state combination. Whether you’re an art buyer or seller, ignoring these taxes is never a great idea.
The key to understanding how taxes are applied is something called ‘nexus’. No we’re not taking about the boarder entry pass.
Nexus is the term used to describe the necessary connection an entity must have for it to be able to collect a tax. This means that some contact between a retailer/seller and the state must occur. Examples can include any employees or independent contractors working in the state, regular travel to solicit sales, ownership or rental of property (including inventory and equipment) and participation in trade shows. If a seller checks off any of these boxes they have created nexus.
Once nexus has been established sellers are required to register with state tax authorities. For any seller, this is a good time to be honest on your tax forms – the sweat inducing word audit comes to mind.
But let’s say you’re not a seller but instead an art buyer. When you purchase something in one state and then use it in another you often trigger a “use tax”. Maybe you purchased from an out of state vendor, ordered online or over the phone or you bought art out of state or country. As Mary Pat Kohberger of Deloitte Tax LLP points out, some states have a “use tax” entry on individual income tax returns for state residents. Others have individual forms that must be filled out separately. It’s important to note that many states are clever and monitor shipments traveling through customs. There’s that word again, audit.
The take away is that art buyers and sellers should always do their homework when buying art. Just because you haven’t paid tax on a piece of art does not mean you’re off the hook.
But on the other hand, as Kohberger points out, you might find that you’re eligible for tax exemptions. The key is to educate yourself and/or find an expert to help. US tax laws vary state by state – which means there are a lot of varying tax laws.
Whether you are an art buyer or a seller, check out this webinar on Sales and Use Taxes to learn more. Watch Now!
Matt Beasant is a self-taught Canadian artist and experienced writer, born and raised in Northwestern Ontario. Represented by established Canadian Galleries, Matt has exhibited at the Artist Project Contemporary Art Fair and the Toronto Outdoor Art Exhibition in 2016. His work is characterized by crisp lines and bold gradients which are applied by hand using many thin layers of paint –...