New York: ALJ Rejects Artful Sale for Resale Argument

An Administrative Law Judge (ALJ) for the New York Division of Tax Appeals recently addressed whether a taxpayer’s purchase of a one-half interest in a Picasso painting was exempt from sales tax as a purchase for resale. The taxpayer, an LLC whose two members were family trusts, collected artwork and occasionally leased pieces of art to others. The taxpayer purchased a one-half interest in Picasso’s “Femme a la Robe Verte;” the other half was purchased by father of the two sons who were named in the family trusts. Sales tax was paid on the purchase by both parties. The trust subsequently leased the painting to the father for a year-long period; the lease was extended twice. The lease payments included sales tax, which was remitted to the Department of Taxation and Finance. The taxpayer subsequently filed a claim for refund of the sales tax paid on its half of the painting.

Under New York law, failure to provide a resale certificate does not automatically bar a taxpayer from claiming the resale exemption, but the taxpayer must demonstrate that the sole purpose of the purchase was for resale. It was not enough for the taxpayer to prove that one of the intended purposes for the painting was to lease it; it must be the sole purpose for the purchase. The ALJ determined that the acquisition of the painting in fact served two purposes; adding to the taxpayer’s art collection, as well as being leased. Thus, the purchase did not qualify for the resale exemption and was properly subject to sales tax. For more information on In re Matter of Objet LLC please contact Judy Cheng at (212) 872-3530.