Premier Exhibitions Inc., the company holding salvage rights to the R.M.S. Titanic in addition to owning over 5,500 artifacts, is undergoing bankruptcy proceedings in Florida due to mounting debt obligations. While several options are on the table, one proposal from a group of minority shareholders wants the company’s artifacts sold to the highest bidder as a group or individually. The sales tax implications could vary greatly depending on the location of the auction, delivery method, and where the purchaser takes delivery.
Although Titanic’s trip to New York was cut short, some of what she carried could finish the journey through auction. When auction houses in New York City, like Christie’s, Sotheby’s, or Guernsey’s, auction an item, customers have traditionally arranged shipping or delivery services on their own. Until more recently, auction houses viewed private shipping services as common carriers. As a result, customers would arrange the delivery service and pay sales tax in the jurisdiction of delivery.
In 2016 the New York Attorney General investigated the Gagosian Gallery for improperly sourced sales tax, leading to a $4.28 million settlement. Statements within the settlement announcement informed auction houses that private shipping companies arranged by customers were not common carriers, resulting in the customer taking delivery in New York for sales tax purposes, with an applicable rate of 8.875 percent. Auction houses are now arranging shipping, invoicing clients separately, and sourcing sales tax to the delivery jurisdiction again.
Artifacts could also be sold at auction in California, which takes a different approach. In California, an auction house is treated as a retailer regardless of whether it owns the item for auction, or is providing auction services for a third party. California law also sources sales tax to the location where the auction takes place, no matter where a purchased item is delivered.
If the current owners of Titanic artifacts are permitted to auction items individually through a New York based auction house, purchasers are likely to face sales tax implications in the jurisdiction of delivery. However, no matter what the bankruptcy judge decides regarding the artifacts, a federal judge in Norfolk, Virginia overseeing maritime law will have to approve.
Continue the discussion on Bloomberg Tax’s State Tax Group on LinkedIn: How does your state treat auction sales?
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