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What do arts, culture, and science have in common with new roads and public transport? In this article, Avalara's Gail Cole discusses how state and local sales taxes not only help pay for roads, they can foster cultural programs by raising funds for arts, entertainment, and science.
By Gail Cole
Gail Cole began researching and writing about sales tax for Avalara in 2012 and has been fascinated with it ever since. She has a penchant for uncovering unusual tax facts, and endeavors to make complex sales tax laws more digestible for both experts and laypeople alike. Learn more.
Sales tax and the arts aren't as strange of bedfellows as one may think. True, the former has its roots in the worlds of business and politics, and the latter oftentimes stems from revolt. Yet, in many parts of the country, state and local sales tax policies were developed specifically to support the arts. Exemptions encourage the consumption of art, while targeted taxes raise funds for various arts and cultural programs.
Then again, not all sales tax policies are so supportive. Nevada, for example, imposes a live entertainment tax on cover charges, table reservation fees, and required minimum purchases of food or merchandise, although different rules apply to different venues. And North Carolina now specifically taxes admissions to arts and cultural sites and live performances of any kind.
Whether you're a serious supporter of the arts or just a casual observer, you're sure to find the following examples of how art and sales tax intersect colorful.
Art lovers can add to their collections without paying sales tax in Arizona, but only if they don't reside in Arizona. The state sales tax exemption for original or multiple original art works only applies to purchases by residents of other states or countries, and only when the seller ships the artwork out-of-state on behalf of the buyer. Arizona residents pay taxes on their art purchases. A similar exemption exists in New Mexico.
Looking ahead: Proponents of these exemptions say they encourage tourism and help local art galleries compete with those in other states. Opponents point to the potential revenue that taxing the arts could generate. They also question the fairness of offering out-of-state art connoisseurs a tax break while taxing in-state connoisseurs. Expect lawmakers to continue introducing bills like Arizona Senate Bill 1144, which called for a reexamination of these and other exemptions.
“Sales of original, one-of-a-kind works of visual arts” in Louisiana's special Cultural Districts have been exempt from local and state sales tax for years. However, ongoing fiscal woes have tempered Louisiana's support of the arts. Although sales of original artwork in specified districts remain exempt from local sales taxes, the state exemption for sales of original artwork was suspended on April 1, 2016. It will not be reinstated until July 1, 2018.
A state sales tax exemption for admissions to cultural events and institutions (e.g., arboretums, museums, and the New Orleans Jazz & Heritage Festival) was also suspended temporarily. It will be reinstated on July 1, 2018, the same date a temporary tax on certain other admissions will drop to 1 percent; the full exemption is not scheduled to be renewed.
Looking ahead: With the fiscal situation in Louisiana looking increasingly bleak, Gov. John Bel Edwards supports broadening the state sales tax and lowering the rate. This was rejected by the legislature during its regular session, but permanently eliminating these and other exemptions may be revisited when the legislature reconvenes for a special session in July.
New York sales and use tax policies support the arts in several ways. For example, certain property and services used in dramatic and musical arts performances are exempt. Admissions to “dramatic or musical arts performances” are too.
However, admissions to many other forms of amusement and entertainment aren't so lucky. Several adult entertainment businesses that provide lap dancing and pole dancing have unsuccessfully sued the state over the fact that tax applies to them, with criticisms levied at lawmakers for making “a distinction between highbrow dance and lowbrow dance.”
As for fine art, the international art world was turned on its head last year when New York Attorney General Eric T. Schneiderman went after an international art dealer for millions in back taxes on sales of art shipped to New York customers, or from New York to customers in other states. Schneiderman said, “There is one set of tax rules for all, and that includes art dealers and collectors.” His office plans to “remain vigilant in order to ensure that art dealers and collectors fully abide by the state's tax laws.”
Looking ahead: Vigilance will be needed. A facility under construction in Harlem is slated to become a foreign-trade zone for art, storing up to $2.5 billion worth of duty-free art until the new owners decide what to do with it. Buyers who move their new art directly into the facility will also be able to sidestep New York sales and use tax — at least until the art is removed.
No state encourages the arts more than Rhode Island. As of December 1, 2013, “The sale of original and creative works created by — and sold by — writers, composers, and artists residing in and conducting business within the state of Rhode Island” is exempt from sales and use tax. Sales by Rhode Island art galleries are also exempt. It is a true “ State of the Arts.”
Looking ahead: The reported success of Rhode Island's policy may inspire other states. The National Governors Association notes that, in addition to other benefits, arts and culture-related industries “create jobs, attract investments, generate tax revenues, and stimulate local economies through tourism and consumer purchases.”
Indeed, Florida has considered a similar exemption several times, most recently in 2015 with House Bill 89, though the measure primarily supported investors. Bill sponsor Rep. David Richardson pointed out that paying sales tax on the purchase of art and then capital gains tax when it is sold for a profit is a form of double taxation. He said, “You don't pay a sales tax when you buy stocks. I don't think investment art should be taxed.”
Local communities across the country support the arts with local sales tax, the same way they may fund new roads or public transit. For example, sales and use tax collected in Denver's Scientific and Cultural Facilities District supports the advancement and preservation of cultural and natural history, natural sciences, and visual and performing arts throughout the city's greater metropolitan area. In Pennsylvania, Allegheny County's sales and use tax helps fund libraries, parks, sports facilities, and cultural and arts organizations. Since 1995, the 1 percent tax has resulted in regional investments of more than $3.4 billion. A similar program exists in St. Paul, Minnesota.
Looking ahead: Washington's King County Council wants to increase sales and use tax by 0.1 percent. If approved by voters during the August primary, the tax increase would raise more than $65 million annually for arts, culture, and science programs throughout the county (which includes Seattle). The goal of the special tax is to make these programs more accessible and affordable for families and seniors with lower incomes.
While it has many advocates, the proposed tax is not without opponents. It has been called a regressive tax that would “ hit low income folks the hardest,” and it was almost blocked from the ballot. Its fate rests with voters now.
As these examples illustrate, sales tax can either support the arts or generate revenue from them. With the Trump Administration looking to eliminate federal funding for the National Endowment for the Arts and similar programs, sales and use taxes may become an increasingly important, stable source of revenue for the arts. If you deal in arts and culture, be sure you know if and how what you sell (or buy) is taxed. Tax automation software facilitates sales and use tax compliances for all businesses, from enterprises to independent artists.
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