Using sales tax to shape the arts – Wacky Tax Wednesday

Using sales tax to shape the arts – Wacky Tax Wednesday

At first glance, sales tax and the arts may seem like unusual bedfellows. Yet sales tax policies in several parts of the country encourage the consumption of art in a variety of ways. Rhode Island, a true State of the Arts, wins the prize for being the most supportive of local artists.

Of course, sales tax policies can also be used to ding the arts — or at least do them no favors. Some states specifically tax the arts. And some tax or exempt certain types of art.

Although no one would ever accuse me of being artistic, I appreciate all sorts of art. And I find the different sales tax policies toward the arts to be downright fascinating. Read on to see what I mean.

Arizona loves out-of-state art lovers

Arizona encourages a love of art, but curiously, not among Arizona residents. The state exempts “an original or multiple original art work” that is sold to out-of-state residents and shipped out-of-state by the seller. Qualifying artwork includes a variety of media, from calligraphy to mixed media, and there are no price restrictions.

A similar exemption exists in New Mexico, where it has been fiercely defended by art gallery owners.

California encourages government to purchase art

Sales of original works of art are exempt in California, but only when purchased by or on behalf of a California state or local entity, or when purchased for public display in a museum or public place.

Louisiana doesn’t support the arts like it used to

Louisiana has special Cultural Products Districts, where “sales of original, one-of-a-kind works of visual arts are exempt from local and state sales tax.” The state generously defines “original, one-of-a-kind” works of art, allowing an exemption for some antique furniture, handmade jewelry, and wearable art. However, music recordings, performing arts, and tattoos are among the media and products ineligible for the exemption.

Yet much as it loves and wants to support the arts, Louisiana has temporarily suspended and then reduced the exemption for original artwork and admissions to arts, cultural, food, heritage, and music events due to its ongoing fiscal challenges. The 0 percent rate for sales of original artwork and some admissions is slated to take effect once again July 1, 2018, when admissions to other events will drop to 1 percent.

With the fiscal situation looking increasingly bleak, Gov. John Bel Edwards is considering broadening sales tax. The exemption for original artwork and admissions to the abovementioned events could be on the chopping block.

New York supports dramatic and musical arts

New York supports the arts in several ways: It provides a sales and use tax exemption for certain property and services used in dramatic and musical arts performances; it exempts admissions to “dramatic or musical arts performances”; and it gave millions in tax credits to keep the Late Show in New York City.

However, the state doesn’t exempt all transactions involving art. Several businesses that provide lap dancing services and adult entertainment such as pole dancing have sued the state over the fact that tax applies to their admissions and scrips (Exempt art v. taxable fantasy). Just last month, the New York Tax Appeals Tribunal affirmed that sales of scrip at a gentleman’s club are taxable.

In addition, 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.

Rhode Island is a State of the Arts

No state encourages the arts more than Rhode Island. As of December 1, 2013, Rhode Island is a State of the Arts: “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.

Florida would support art investors

An exemption similar to Rhode Island’s has been considered in Florida, most recently in 2015 with House Bill 89. Unlike the Rhode Island Statewide Exemption for the Arts, however, the Florida measure would only have exempted sales of original works of art signed and sold by the artist “if the work is not numbered and the sales price equals or exceeds $1,000.”

At its core, Florida HB 89 supported investors more than artists. As bill sponsor Rep. David Richardson pointed out, “You don’t pay a sales tax when you buy stocks.”

Nevada taxes live entertainment

People from all over the world travel to Las Vegas to gamble in its casinos, see Venetian canals in the desert, and take in spectacular shows. Rather than reward this travel with a tax break, the state imposes a live entertainment tax on this captive audience. The tax applies to cover charges, table reservation fees, and any required minimum purchase of food or merchandise.

But because nothing is ever simple in Vegas, different tax rules apply to different venues. Taxability is affected by such things as seating capacity and whether the entertainment occurs in a gaming or non-gaming establishment.

North Carolina taxes admissions to museums

About the same time that Rhode Island instituted its statewide exemption for the arts, North Carolina began taxing previously exempt admissions to cultural sites and gardens, motion pictures, museums and exhibits, sporting events, and live performances of any kind. The state needed additional sales tax revenue after decreasing corporate and personal income tax rates.

Seattle would increase sales tax to fund the arts

Seattle is considering a different approach to supporting the arts with sales tax. King County Executive Dow Constantine has proposed increasing the sales tax rate in King County by 0.1 percent to raise more than $65 million annually for arts, culture, and science programs throughout the county.

The proposed tax increase has opponents. King County Councilmember Dave Upthegrove called it a regressive tax that would “hit low income folks the hardest.” He said that “a major and direct investment back into the working class communities of South King County” would be necessary in order for him to support this sales tax increase.

King County voters will have the final say if a sales tax for the arts makes it as far as the August ballot.

The above list is far from exhaustive but gives a taste of the many ways sales tax is used to support the arts (or generate revenue from them) in this country. So, if you make and sell any type of art, be sure you know if and how it’s taxed.

Tax automation software helps businesses large and small with tax compliance. Learn more.

Recent posts

The 2021 sales tax changes report: midyear update

Your guide to navigating the complicated world of tax compliance and preparing for the future 

The 2021 sales tax changes report: midyear update

Hear tax and industry experts break down the latest legislative updates and industry trends in our upcoming virtual event.

Stay up to date

Sign up for our free newsletter and stay up to date with the latest tax news.