How Justice Kennedy’s Wayfair decision impacts the art world

One of Justice Kennedy’s final decisions before his retirement, Wayfair v. South Dakota, overturns the 1992 Quill decision requiring physical presence in order for a business to be subject to collect and remit a state's sales tax. Doing away with the physical presence test, e-commerce sites and other businesses shipping into the state may no longer operate tax-free in the state of South Dakota.

Under the Wayfair ruling, South Dakota may now impose the duty to collect and remit sales tax from commercial entities that do US$100,000 or more of business or the entity has more than 200 transactions with the citizens of the state. For example, if a New York art gallery ships a painting sold for US$100,000 to a resident of South Dakota, then it must collect and remit South Dakota sales tax from that resident.

Wayfair will have an obvious impact on out-of-state art galleries, particularly those in New York, which will likely soon have to collect sales tax on behalf of most states where the art is shipped as those states adopt sales tax regimes similar to the one enacted by South Dakota. This means that collectors will be paying the tax at the point of sale on top of the cost of the art.

Given that most states are already planning to revise their sales tax laws, collectors that live in states where it is likely that Wayfair revisions will soon occur should take Wayfair into account when planning their purchases.