The Race for a Tax Break: How Buyers Circumvent ‘Use Taxes’ on Art

By Emma Kleiner

Francis Bacon, "Three Studies of Lucian Freud," (1969). © The Estate of Francis Bacon.

Francis Bacon, “Three Studies of Lucian Freud,” (1969). © The Estate of Francis Bacon.

When Three Studies of Lucian Freud (1969) by Francis Bacon sold last November in New York for $142.4 million, the art world wondered about the identity of the unnamed buyer and the location of the triptych’s new home. Subsequently, the identity of the triptych’s anonymous buyer was revealed: the buyer was Elaine Wynn, who divorced Las Vegas casino owner Stephen A. Wynn in 2010. Although Ms. Wynn is a resident of Nevada, in December 2013, Three Studies of Lucian Freud made its surprising post-auction debut at the Portland Art Museum in Oregon. While the decision to anonymously lend the painting to the Museum may appear surprising at first, the Portland Art Museum regularly attracts recently auctioned items to display in its galleries. The decision for collectors to regularly lend to the Portland Art Museum originates from a reason more basic than the Museum’s location, collection, or galleries – it is based on a tax break.

Although Ms. Wynn has not released the tax plan for Three Studies of Lucian Freud, her tactical decision to show the triptych in Oregon instead of shipping it to her Las Vegas home from Christie’s in New York likely helped her to avoid use taxes in her home state, which, in her case, may have reached $11 million. Use taxes incur when an individual sends home an out-of-state purchase. By shipping recently purchased artwork out of state immediately, the collector avoids the state’s sales tax, but use taxes are in place to make up for that loss. Still, a collector can avoid their home state’s use tax by utilizing a little known loophole. Usually, artwork is subject to a use tax in the state where it arrives after it is shipped from its purchase location, but five states—Alaska, Delaware, Montana, New Hampshire, and Oregon—do not have a use tax. In contrast, California, which established a use tax in 1935, has a use tax rate of 8.75% and Nevada, which established a use tax in 1955, has a use tax rate of 6.85%.  By the time the artwork arrives in the owner’s home state, it has already been “used” in another state, and thus no use taxes are owed. This clever tactic allows art buyers, who sometimes pay tens of millions for artwork, to relocate the artwork to their private residence tax-free.

Similar to the Portland Art Museum, museums in tax-free use states often encourage collectors to loan recently purchased artwork before it disappears into private homes. For example, the Jordan Schnitzer Museum of Art at the University of Oregon in Eugene, Oregon, has experienced such an influx of recently auctioned artwork that they established a program called Masterworks on Loan, which “invites private collectors to share their masterworks with our constituents.” With a nod to the favorable tax breaks provided by Oregon, the Museum’s website proclaims, “Some lenders may receive tax benefits for participating in our Masterworks on Loan program and should consult a tax advisor to learn more.”


Francis Bacon, “Three Studies for a Portrait of John Edwards” (1984)

While the decision for an art buyer to exhibit their purchase at a small museum in a tax-free use state may at first seem like an innocuous opportunity for the expansion of arts education, there is a tension between that idea and the harm to the buyer’s home state that usually receives the revenues from use taxes. Upcoming auctions will provide the art world with the opportunity to see if this tax loophole becomes more prevalent. If it does become popular, individual states may be motivated to change their tax code to make up for the loss that is incurred when art is first displayed in a tax-free use state. Later this month, Christie’s in London will auction another triptych by Francis Bacon, entitled Three Studies for a Portrait of John Edwards (1984), estimated sales value between $4.4 and 5.8 million If purchased by an American collector, it is easy to imagine that this work, too, may head to an exhibit in Oregon shortly thereafter.


About the Author: Emma Kleiner is a student at Stanford Law School.

Disclaimer: This article is intended as general information, not legal advice, and is no substitute for seeking representation.

2 thoughts on “The Race for a Tax Break: How Buyers Circumvent ‘Use Taxes’ on Art

  1. It is indeed an upside down Universe we inhabit where a work of “Art” such as the “Three Studies of Lucian Freud” (1969) by Francis Bacon can be sold (last November in New York) for $142.4 million.

    If one reviews a recent list of the highest prices ever paid for a painting, one discovers that all the most expensive paintings ever sold fall into the “modern” era.

    In the list of most expensive paintings ever sold as displayed on Wikipedia, (the free encyclopedia), one must count off a full twenty paintings constituting “Modern” works of Art before one encounters the sale of a single “Old Master” painting- in this instance the “Massacre of the Innocents” by Sir Peter Paul Rubens, (1577-1640) which fetched $76.7 million (£49.5 million ) on July 10, 2002 which would equate to $ 99.7 million in today’s money- still many millions of dollars below the $142.4 million price paid for the “Francis Bacon”.

    Referring to the above noted Wikipedia List, compare the Rubens’ “Massacre of the Innocents” $ 76.7 million sale to the sale of “American Flag” by Jasper Johns in March of 2010 for $ 110 million or $ 118.3 million in today’s money.

    Consider the two works of Art, side by side. Does something seem amiss ?

    We indeed live in a world in which the meaning of what constitutes a “Masterpiece” or a great and timeless work of Art possesses a new definition. And it is a definition it did not possess for over five thousand years going back to the High Renaissance, the works produced in Ancient Classical Greece and even further back to the most distant eras of early Ancient Antiquity.

    Although none of us will be around in 100 or 200 years to see if I am correct, I am of a mind that over time, call it the shifting winds of taste and fate, there will occur a certain sifting process regarding the world of aesthetics that will inform people that the list of the world’s “most expensive paintings” that one encounters on Wikipedia may have more to do with clever marketing by fast talking “dealers” in the Art Trade and the personal egos of deep pocketed Art collectors, than the actual true aesthetic value and artistic significance of certain works of Art.

    If the “Three Studies of Lucian Freud” were a Wall Street stock I would venture to say that the descendants of this investment will be taking a rather substantial financial loss in the next fifty years, certainly one hundred years. And that idea would equally apply to a great many of the paintings that appear on Wikipedia’s current “List of most expensive paintings” ever sold.

    On that list appear many indisputable true Art Masterpieces including works by Vincent Van Gogh, Paul Cezanne, Auguste Renoir, and Pablo Picasso.

    These are painters whose works will endure and survive the very harsh and unforgiving test of time. But time will not be nearly so kind nor charitable with a great many contemporary “works of Art”, whose stellar market performances today have far more to do with the fickle and transitory whims of contemporary fashion and slick Madison Avenue marketing techniques than with real aesthetic substance such as one encounters in a painting by Rembrandt or Titian or yes, among the Moderns- the immortal genius, Vincent Van Gogh.

    Just one man’s considered opinion based upon over fifty years as an artist.

    David Pakter, M.A., M.F.A.

  2. 100 million is certainly a lot of money for a piece of canvas and some oils! Yet America’s city are stuffed with buildings that expensive that enjoy far superior tax breaks. Heck, every American home-owner enjoys tax *breaks* for buying and selling private property!

    I would argue that finding ways for artists and their collectors to benefit financially — without the lobbyists that builders and bankers (not to mention politicians) employ — would provide an additional selling point for today’s art makers and traders. I would love to tell a buyer that their purchase is a write-off.

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