Art Freeport Coming to New York. What are the Implications?

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art freeport

The attached article sums up the prospect of having a New York Freeport perfectly when it states: “in what will undoubtedly be music to the ears of art buyers all over the world.” One wonders why it took so long for New York to get in on the act. It makes absolutely perfect sense being that New York is home to the major auction houses and some of the biggest galleries in the world. From all appearances it looks like the New York Freeport will be up and running sometime next year. Let’s look at some of the implications this will have on the art world.

For starters, it will save investors and collectors who live outside of New York millions in shipping costs. Instead of having to ship their art to Delaware or one of many international Freeport’s, investors will be able to place their art in the new facility located right up the road in Harlem. Of course, there are losers in this deal, namely art shipping companies (both big and small) who command big fees for shipping often very large and delicate works and other collectibles overseas.

Obviously, it will affect Delaware and other North American Freeport’s in a big way, and to a lesser, but still substantial extent to Freeport’s in Europe. This new facility also plays well into fine art’s new image as a legitimate asset class and store of value. New York is the financial hub of the world, and the home of many major major banks and brokerage firms. Banks and wealth managers will be able to tout this facility to both their domestic and international clientele in their quest to secure assets under management.

For investors who live in New York, they will still have to go to Delaware or some other Freeport to avoid sales tax. New York residents who purchase art in New York are automatically subject to sales tax at the time of purchase. However, New Yorker’s who purchase art overseas can use the N.Y Freeport to avoid sales and use tax upon entry into the U.S.

Freeport’s are often used as private museums by the very wealthy, who often aim to keep their collections in tact, but at the same time avoid taxation. There are many New Yorkers who will be thrilled to have a New York Freeport, giving them the ability to see their art and arrange viewings for potential buyers in their own backyard.

In certain countries, the import tax on fine art is prohibitive, so art investors rarely bring their art home. Since much of their art is often purchased in New York, they will have a much easier time managing and displaying their art investments to potential buyers with a N.Y Freeport. In addition, many art investors must often have their works shipped to New York for viewings. Having a New York Freeport will avoid them having to ship their art back and forth.

Because Freeport’s are notoriously known for hiding wealth, it will be interesting to see how foreigner citizens take to a NewYork Freeport. The U.S government has been been on crusade the over the past decade to snuff out wealthy American citizens who hide cash and other assets overseas in order to avoid taxes. This effort has been successful mainly due to the cooperation of foreign governments. Now that the shoe will be on the other foot, sort of speak, it will be interesting to see how European and other governments tackle this issue with the cooperation of U.S authorities.

More About Art Freeport’s:

High-profile auctions and art sales are thrilling experiences. The excitement of adding to a collection is unparalleled. However, there is also the dreary reality of taxes. Because of the high selling point of art works, sales attract the attention of auditors and it is vital to understand and follow art tax law. Law officials have conducted high-profile probes into art galleries and private collectors alike to ensure that best practices are followed. Ignorance of the law does not mean exemption from the law and the last thing anyone would want would be the appearance of tax evasion.

Tax law in New York has special codes and regulations for art that is hung and displayed in a private residence. This sales and use tax has two exceptions: the work of art has been sold for the intent of resale or the work is being delivered out of state and the dealer does not do business in the place it is being delivered. If it is found that a collector is displaying a work of art regardless of purpose, it would be interpreted as décor, and would be taxed as such.

There have been many recent cases of collectors claiming that the art displayed in their homes or businesses were only being held for resell. In May 2016 Aby Rosen, a Manhattan real estate developer, paid $7 million of unpaid taxes for $80 million of artwork that was allegedly used for personal enjoyment and to enhance his properties. It was ruled in the state of New York that displaying art at home or an office falls under sales and use taxes, even if the collector does plan on eventual resell. A precedent like this can mean that lawmakers are expanding on the reach of the sales and use laws.

This brings us to the other exception to tax law: transporting art to a different state. This practice is known as domestic freeports. Freeports are storage facilities that art collectors can ship their art to so that sales taxes cannot be applied to the sale. This leaves no room for ambiguity if the collector’s intention is to later resell the work rather than display it at home. Delaware has become a popular location for New York collectors thanks to its proximity and state-of-the-art storage services. The Delaware Freeport, one privately owned facility, offers a climate controlled location and a special showcase room and other services to assist collectors in reselling. This gives greater peace of mind since collectors do not need to be concerned with works becoming damaged since the piece does not need to be moved after resell.

If you are unsure if you are properly complying with tax law, consult a professional. There are consuls who specialize in art taxes who have the most current information at their disposal. This is especially significant now that we are in the middle of tax season. Be sure that you are following best practices so that you do not get fined due to a technicality.

New York is Next, and it’s about time:

 

Will New York Get Its Own Freeport for Art? ARCIS Plans a Tax Haven in Harlem

A freeport on par with Geneva and Singapore.

Eileen Kinsella, March 2, 2017

Is Harlem set to become the new Geneva?

In what will undoubtedly be music to the ears of art buyers all over the world—and alarm bells to those who feel the super-wealthy already enjoy too many tax loopholes—New York City, the veritable capital of the art world, may be about to get a state-of-the-art storage facility with “foreign trade zone” (FTZ) status, aka a “freeport.” Due to open for business this summer, the fortress-like facility will be located on 146th street.

Like similar freeport options already in place in Singapore, Geneva, and, more recently, in Delaware, no tax is due on the artwork for as long as it is stored in the facility, though applicable taxes are due in the respective location the work eventually ends up in for display or ownership. (The FTZ designation is “the United States’ version of what are known internationally as free-trade zones,” according to the US Customs and Border Protection website.)

“Many, many things are sent to Switzerland to get them out of the United States in order to get certain benefits against the value,” said Kevin Lay, who is helping spearhead the project. “Collectors can have the benefit of saving on shipping.”

There is no time limit on storage at the new facility, which is under construction by storage company ARCIS in Harlem.

Read Full Article:

https://news.artnet.com/art-world/will-new-york-get-its-own-freeport-for-art-arcis-plans-a-tax-haven-in-harlem-878165

New Delaware Freeport Offers New York Collectors an Art Tax Haven Close to Home

US and foreign art collectors and dealers are flocking to a newly opened 36,000-square-foot, state-of-the-art storage warehouse in Newark, Delaware. The September opening of the space in a state that has no sales tax comes at a time when New York state authorities have newly tightened regulations regarding works of art.

For example, in January, the Manhattan DA launched a secret investigation into galleries and dealers allegedly using tax havens that was first reported by artnet News. Which is where Delaware comes in.

The brainchild of art logistics expert Fritz Dietl, the new Delaware Freeport offers cutting-edge security capabilities to protect against fire, water damage, and theft, as well as the added benefit—for collectors who opt to ship or store art there—of the state’s lack of sales or use tax. For New Yorkers, who have to pay 8.875 percent in tax, the advantage is obvious.

“A big reason why I chose Delaware, being in the industry for so many years, I’ve seen how much property is moved to freeports around the world and obviously to Switzerland,

Read Full Article: https://news.artnet.com/market/delaware-freeport-tax-haven-341366

Art Market Tax Probes Make Domestic Freeports Appealing

By Desiree Moore and Blaise Niosi, K&L Gates LLP

Blaise Niosi On May 12, 2006, Manhattan District Attorney (DA) Robert M. Morgenthau announced that L. Dennis Kozlowski, former CEO of Tyco International, would pay $3.2 million to settle charges of avoiding sales tax on 12 paintings he purchased from art dealers in Manhattan and London.

While the amount of Kozlowski’s settlement is staggering, his story is not unique. In the years leading up to Kozlowski’s settlement, the Manhattan DA’s office undertook a broad investigation of galleries that had failed to collect, and buyers…

https://www.law360.com/media/articles/882258/art-market-tax-probes-make-domestic-freeports-appealinWill New York Get Its Own Freeport for Art? ARCIS Plans a Tax Haven in Harlem

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