Does a nonresident investment fund that buys artwork outside New York and loans it, free of charge, to a New York museum owe New York use tax on that artwork?

Plain-English summary

The Great Art Fund III, LLC is a Delaware investment fund that buys fine art for future resale. It bought artwork from dealers outside New York, and the art was shipped straight to storage in Delaware — no New York sales tax applied because delivery happened outside the state. The fund's manager is run by a New York resident, and that resident is also a board member of the Nassau County Museum of Art (NCMA), which asked to borrow some of the fund's artwork for a free public exhibit. The fund would get nothing in return for the loan, would keep legal ownership throughout, and the museum would handle transporting the art to and from Delaware.

The Department worked through several layers. First, since the museum pays nothing for the loan, there's no "sale" under the Tax Law's definition — no sale means no sales tax on the loan itself. Even if it were treated as a sale, it would be exempt anyway because the NCMA is a tax-exempt § 501(c)(3) charitable organization under § 1116(a)(4). But that's not the end of it: bringing the art into New York for display is itself a taxable "use" of tangible personal property in New York, separate from any "sale." Ordinarily, using property in New York triggers use tax.

However, New York exempts a nonresident's use of property they bought while a nonresident, as long as they don't later use it in a New York business or trade (the § 1118(2) nonresident-purchaser exemption). Because the fund had no place of business and did no business in New York at the time it bought the art, it qualified as a nonresident purchaser — so the museum loan into New York doesn't trigger use tax. The Department flagged two important caveats: if the fund itself later starts doing business in New York (like soliciting New York investors or buyers), it could lose nonresident status going forward; and if the fund and its manager's company are so intertwined that they're really alter egos of each other rather than separate entities, the whole analysis could come out differently.

What this means for you

Art funds, collectors, and investment vehicles

Buying and storing artwork entirely outside New York, then lending it (without payment) to a New York museum, generally won't trigger New York sales or use tax — provided you were a genuine nonresident with no New York business activity at the time of purchase. Keep clear records of where purchases were delivered and your business activity at each purchase date.

Nonprofit museums and cultural institutions

A free loan from a lender is not a taxable "sale" to the museum, and even if it were treated as one, a qualifying § 501(c)(3) exempt organization's acquisitions are generally exempt anyway. The tax exposure in this ruling fell on the lender's "use," not the museum's receipt of the art.

Accountants and tax professionals

Watch the layering here: (1) no consideration = no "sale"; (2) even a sale to an exempt organization would be exempt under § 1116(a)(4); (3) bringing property into New York is nonetheless a taxable "use" under § 1101(b)(7); (4) the nonresident-purchaser exemption in § 1118(2) is what actually does the work of avoiding use tax. Also flag the alter-ego warning: if a fund's management company is a New York resident and the two entities' activities are commingled or dominated by one another, the Department may disregard the separate-entity structure entirely.

Common questions

Q: Does loaning artwork to a museum for free trigger New York sales tax?
A: No — without any payment from the museum, there's no "sale" as the Tax Law defines it, and even if it were a sale, a qualifying tax-exempt museum's acquisition would be exempt under § 1116(a)(4).

Q: Does bringing my out-of-state artwork into New York trigger use tax?
A: Generally, using tangible personal property in New York can trigger use tax. But if you were a nonresident (no New York place of business or trade) when you purchased the property, the § 1118(2) nonresident-purchaser exemption can shield you from use tax on that later New York use.

Q: Could this fund lose its exemption later?
A: Yes — if it starts doing business in New York (soliciting New York investors or buyers, for example) or if its relationship with its New York-based management company is so intertwined that they'd be treated as alter egos rather than separate entities, the Department could reach a different result for later purchases or transactions.

Q: Can another art fund or collector rely on this exact ruling?
A: No. This Advisory Opinion binds the Department only as to The Great Art Fund III, LLC and the specific facts it described. Anyone else's structure, business activity, and purchase history would need its own analysis.

Citations and references

Statutes and regulations:

• Tax Law § 1101(b)(5), (6), (7) (sale, tangible personal property, and use definitions)
• Tax Law § 1105(a) (imposition of sales tax)
• Tax Law § 1110(a) (imposition of compensating use tax)
• Tax Law § 1116(a)(4) (charitable/educational organization exemption)
• Tax Law § 1118(2) (nonresident-purchaser use tax exemption)
• 20 NYCRR 525.2, 526.7(e), 526.15, 531.5(b)

Prior opinions cited:

• Harfred Operating Corporation, Adv Op St Tx Comm, July 18, 1986, TSB-A-86(28)S
• Bass Pro Outdoor World, LLC, Adv Op Comm T&F, June 11, 2003, TSB-A-03(25)S

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_2008.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a08_7s.pdf

Original ruling text

New York State Department of Taxation and Finance

TSB-A-08(7)S
Sales Tax
February 14, 2008

Office of Tax Policy Analysis
Taxpayer Guidance Division
STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S061220C

On December 20, 2006, the Department of Taxation and Finance received a Petition for
Advisory Opinion from The Great Art Fund III, LLC, 203 Springer Building, 3411 Silverside
Road, Wilmington, Delaware 19810. Petitioner, The Great Art Fund III, LLC, submitted
additional information pertaining to the Petition on July 27, 2007.
The issue raised by Petitioner is whether artwork, purchased by a nonresident, that is
brought into New York State for the sole purpose of loaning it to an exempt organization is
subject to sales and compensating use tax.
Petitioner submitted the following facts as the basis for this Advisory Opinion.
Petitioner is a Delaware limited liability company, treated as a partnership for federal tax
purposes, which was formed on June 12, 2006. Petitioner’s purpose is to purchase and hold for
future appreciation quality works of art by established artists and to resell the pieces after a
period of time. Petitioner maintains its principal office in the State of Delaware.
Petitioner is managed by DL Art Management, LLC ("DL"), a Delaware limited liability
company. DL functions as a consultant making recommendations to Petitioner as to which pieces
of artwork should be acquired or sold. The sole member (and employee) of DL is a New York
State resident. DL does not at any time make any purchases or sales of the artwork on behalf of
Petitioner. Neither DL nor its sole member (and employee) is a member of Petitioner.
Petitioner has, for investment purposes, purchased fine artwork from an art dealer located
outside New York State. Upon purchase, the art dealer directly shipped the artwork to a storage
facility in the state of Delaware, where it continues to be stored. To date, the artwork has not
entered New York State and, as a result, no New York State sales and use tax has been paid in
connection with the purchase of the artwork.
At no time is any individual member of Petitioner or DL permitted to take possession of
any piece of artwork acquired by Petitioner for that individual's personal enjoyment.
The New York State resident and sole member of DL is a board member of the Nassau
County Museum of Art ("NCMA"). Petitioner has received a request from the NCMA to loan
the NCMA selected pieces of Petitioner’s artwork for a limited time. The NCMA is exempt
from federal income tax under section 501(c)(3) of the Internal Revenue Code of 1986, as
amended, and is a registered exempt organization with New York State. The artwork is expected

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to be displayed by the NCMA so that the general public will be able to view and enjoy the
artwork.
Petitioner will receive no consideration from the NCMA for allowing the NCMA to
display the artwork in the museum. Petitioner, at all times, remains the owner of the artwork
though the NCMA will control decisions pertaining to the display of the artwork. The NCMA
will transport the artwork from Petitioner’s Delaware warehouse to the museum and return it to
the Delaware warehouse at the end of the exhibition.
Petitioner has not previously made loans of artwork to museums in New York.
Applicable law and regulations
Section 1101(b) of the Tax Law provides, in part:
When used in this article for the purposes of the taxes imposed by subdivisions
(a), (b), (c) and (d) of section eleven hundred five and by section eleven hundred ten, the
following terms shall mean:
*

*

*

(5) Sale, selling or purchase. Any transfer of title or possession or both, exchange
or barter, rental, lease or license to use or consume (including, with respect to computer
software, merely the right to reproduce), conditional or otherwise, in any manner or by
any means whatsoever for a consideration, or any agreement therefor, including the
rendering of any service, taxable under this article, for a consideration or any agreement
therefor.
(6) Tangible personal property. Corporeal personal property of any nature. . . .
(7) Use. The exercise of any right or power over tangible personal property or
over any of the services which are subject to tax under section eleven hundred ten of this
article or pursuant to the authority of article twenty-nine of this chapter, by the purchaser
thereof, . . .
Section 1105(a) of the Tax Law imposes sales tax upon:
The receipts from every retail sale of tangible personal property, except as
otherwise provided in this article.
Section 1110(a) of the Tax Law provides, in part:

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Except to the extent that property or services have already been or will be subject
to the sales tax under this article, there is hereby imposed on every person a use tax for
the use within this state . . . except as otherwise exempted under this article, (A) of any
tangible personal property purchased at retail,. . .
Section 1116(a) of the Tax Law provides, in part:
Except as otherwise provided in this section, any sale or amusement charge by or
to any of the following or any use or occupancy by any of the following shall not be
subject to the sales and compensating use taxes imposed under this article:
*

*

*

(4) Any corporation, association, trust, or community chest, fund, foundation, or
limited liability company, organized and operated exclusively for religious, charitable,
scientific, testing for public safety, literary or educational purposes . . . no part of the net
earnings of which inures to the benefit of any private shareholder or individual, no
substantial part of the activities of which is carrying on propaganda, or otherwise
attempting to influence legislation . . . and which does not participate in, or intervene in
(including the publishing or distributing of statements),any political campaign on behalf
of any candidate for public office;
Section 1118 of the Tax Law provides, in part:
The following uses of property and services shall not be subject to the
compensating use tax imposed under this article:

*

*

*

(2) In respect to the use of property or services purchased by the user while a
nonresident of this state, except in the case of tangible personal property or services
which the user, in the performance of a contract, incorporates into real property located in
the state. A person while engaged in any manner in carrying on in this state any
employment, trade, business or profession, shall not be deemed a nonresident with
respect to the use in this state of property or services in such employment, trade, business
or profession.
Section 525.2 of the Sales and Use Tax Regulations provides, in part:
Nature of tax. (a) Sales tax.

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*

*

*

(2) Except as specifically provided otherwise, the sales tax is a "transactions tax,"
with the liability for the tax occurring at the time of the transaction. Generally, a taxed
transaction is an act resulting in the receipt of consideration for the transfer of title to or
possession of (or both) tangible personal property or for the rendition of an enumerated
service. The time or method of payment is generally immaterial, since the tax becomes
due at the time of transfer of title to or possession of (or both) the property or the
rendition of such service . . . .
(3) Except as specifically provided otherwise, the sales tax is a "destination tax."
The point of delivery or point at which possession is transferred by the vendor to the
purchaser, or the purchaser's designee, controls both the tax incidence and the tax rate.
Section 526.7(e) of the Sales and Use Tax Regulations provides, in part:
Transfer of possession. (1) Except as otherwise provided in paragraph (3) of this
subdivision, a sale is taxable at the place where the tangible personal property or service
is delivered, or the point at which possession is transferred by the vendor to the purchaser
or his designee.
*
*
*
(2) Except as otherwise provided in paragraph (3) of this subdivision, a sale of
tangible personal property, in which the title to the property passes in New York State,
but in which delivery occurs outside of New York State, is not subject to tax.
Section 526.15 of the Sales and Use Tax Regulations provides, in part:
Resident. (a) Individuals. (1) Any individual who maintains a permanent place of
abode in this State is a resident.
(2) Permanent place of abode is a dwelling place maintained by a person, or by
another for him, whether or not owned by such person, on other than a temporary or
transient basis. . . .
*

*

*

(b) Others. (1) Any corporation incorporated under the laws of New York, and
any corporation, association, partnership or other entity doing business in the State or
maintaining a place of business in the State, or operating a hotel, place of amusement or
social or athletic club in the State is a resident.

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(2) Any person while engaged in any manner in carrying on in this State any
employment, trade, business or profession shall be deemed a resident with respect to the
use in this State of tangible personal property or services in such employment, trade,
business or profession.
Section 531.5(b) of the Sales and Use Tax Regulations provides, in part:
The compensating use tax shall not be imposed on the use of:
*

*

*

(2) Property within this State when purchased by the user while a nonresident of
this State, except when the property is, in the performance of a contract, incorporated into
real property located in this State (a nonresident is any person who is not a resident as
defined in section 526.15 of this Title).
Example 1: A resident of Vermont purchased a television set in Vermont for his
home in Vermont. At a later date he moves and takes up residency in New York
State and uses the television set in this State. No use tax is due on the use of the
television set in New York State.
*

*

*

(6) Tangible personal property or services purchased by any organization which
has qualified as an exempt organization under section 1116 of the Tax Law.

Opinion
Petitioner purchases artwork for investment purposes from art dealers that may be located
within or outside of New York State. The dealers ship the artwork directly to Petitioner’s
storage facility in the state of Delaware. Under section 526.7(e) of the Sales and Use Tax
Regulations, the sale of artwork to Petitioner is not subject to New York State and local sales
taxes upon the purchase thereof since delivery occurs at a location outside of New York.
Petitioner proposes to loan the artwork to the Nassau County Museum of Art (NCMA) for
display to the public.
The NCMA will be responsible for picking up the artwork from Petitioner’s out-of-state
storage facility and returning the artwork to that storage facility after its display in New York
State.
Since there is no consideration provided by the NCMA to Petitioner for the use and
display of the artwork by the NCMA in New York State, there is no sale, as defined in section

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1101(b)(5) of the Tax Law, of the artwork by Petitioner to the NCMA. Even if such transaction
were considered to be a sale, such a sale to the NCMA would be exempt from sales tax under
section 1116(a) of the Tax Law. However, Petitioner’s loan of the artwork to the NCMA for
display by NCMA to the public is considered to be a use by Petitioner of the property in
New York State. See section 1101(b)(7) of the Tax Law. The use of tangible personal property
in New York State is generally subject to use tax under section 1110 of the Tax Law except to
the extent that the property has already been or will be subject to the State sales tax or the use of
such property is otherwise exempt.
Pursuant to section 1118(2) of the Tax Law, tangible personal property, such as artwork,
purchased outside New York State by a person who is a nonresident at the time of purchase is
exempt from New York State and local use tax when brought into New York by the person.
Pursuant to section 1118(2) a person who purchases tangible personal property outside New
York State is not deemed to be a nonresident if, at the time of such purchase, that person is
engaged in any manner in carrying on any employment, trade, business, or profession in New
York State, in which such property is used. See section 526.15 of the Sales and Use Tax
Regulations. Provided that, at the time that Petitioner purchased the artwork, Petitioner did not
maintain a place of business or carry on any business in New York State, Petitioner is deemed to
be a nonresident of this State for purposes of section 1118(2). In such case, Petitioner will not
owe use tax with respect to the subsequent use within New York State of the artwork it
purchased outside New York.
If Petitioner engaged in New York State in its business activity of purchasing and selling
artwork or otherwise engaged in business in New York (e.g., soliciting in New York for
additional investors in Petitioner’s business or soliciting in New York for customers to purchase
any of the artwork Petitioner had accumulated) Petitioner might be considered to be a resident of
New York and subject to use tax with respect to the use in New York of artwork purchased after
the date Petitioner was engaged in business in New York.
It is noted that Petitioner’s management company, DL, may be a New York State resident
if DL’s sole member and employee (who is a New York resident) conducts DL’s consulting
business in this State. The facts of this Petition indicate that Petitioner and DL are unrelated
entities operated as separate and distinct entities. If DL or its employee performed services as
Petitioner’s employee, agent, representative, etc. in New York State, Petitioner would be
considered to be conducting business within New York and would thus be a New York resident
for sales and use tax purposes. Further, if the activities of either Petitioner or DL were so
dominated and controlled by the other, or their activities were so commingled, that they would
be considered to be operating as alter egos of each other rather than separate legal entities, then
the separate entity structures would be disregarded and the conclusions reached in this Opinion

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might be different. See Harfred Operating Corporation, Adv Op St Tx Comm, July 18, 1986,
TSB-A-86(28)S; and Bass Pro Outdoor World, LLC, Adv Op Comm T&F, June 11, 2003,
TSB-A-03(25)S.

DATED: February 14, 2008

NOTE:

/s/
Jonathan Pessen
Tax Regulations Specialist IV
Taxpayer Guidance Division

An Advisory Opinion is issued at the request of a person or entity. It is
limited to the facts set forth therein and is binding on the Department only
with respect to the person or entity to whom it is issued and only if the
person or entity fully and accurately describes all relevant facts. An
Advisory Opinion is based on the law, regulations, and Department
policies in effect as of the date the Opinion is issued or for the specific
time period at issue in the Opinion.