Temporary Import Bond.

Let's talk about exports, baby.

We in the artworld may never have an opportunity like this again: a chance to talk about temporary import bonds’ role in protectionist trade warfare. In last week’s article about tariffs, I sketched the function of freeports in facilitating global art trade; TIBs are the unglamorous bit of paperwork that underpins the real rather than fantastical global art trade.

Robin Hood (1973) explores the implications of the economic nexus taxation model.

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I. Point of Sale.

The headline-grabbing art sales are not terribly interesting from a global trade perspective because of the (relatively) tidy law around point of sale. In an ideal world, when a collector buys a painting on the floor of an auction house, the point of sale is the location of the auction, and the auction house collects sales tax in that jurisdiction. But in reality, that point of sale is the location of the buyer—their home in Delaware, for instance. And while the home jurisdiction may have their own tax, they don’t have a great mechanism for collecting that tax: the auction house, for a long time, was only responsible for collecting sales tax in its jurisdiction.

That changed with the landmark Wayfair decision in 2018¹. Because so much commerce had shifted to online sellers, the loophole had grown to encompass a huge chunk of consumer sales. So the Supreme Court put the honus onto the sellers to collect local taxes essentially wherever they shipped. That was no small honus: there are different tax codes all across the country, and figuring out what to charge and how to file them is a big task for a small business. With this in mind, the idea of an economic nexus evolved: if you sell enough in any particular state, you must be understood to be regularly in business there, and you must collect local sales tax. Beneath a certain threshold—and that threshold varies state-to-state—you are understood not to be in regular business there—but the upshot is that Wayfair made things vastly more complicated and difficult for art dealers.

II. VAT.

What happens when the show goes on the road? All of New York City takes the first week of December to relocate to Miami, and with it, the point of sale travels, too. Florida’s sales tax is comparable to what collectors pay in the Big Apple, so from a dealer perspective, domestic art fairs aren’t about helping their clients avoid paying taxes (a common superstition)—8 7/8% in Chelsea or 7% in Miami Beach, what does a dealer care about the 1 7/8% difference? We’re not paying it either way. The appeal of a fair like Art Basel | Miami Beach is reach: not just 80,000 people, but 80,000 people from all over the world. Miami Beach drags the New Yorkers down for a week, but it also represents a hub for Latin American collectors who might not make their way to New York. While almost every state has a sales tax, the US does not do what much of the rest of the world does, Europe and South America included: Value Added Tax.

Value Added Tax (VAT) is an expensive alternative to sales tax—expensive because it is collected, as the name suggests, every time value is added, rather than only when reaching the final consumer. One company makes screws and sells them to a company that makes electrical boxes and sells them to another company that makes air conditioners—each company collects sales tax and passes that cost on to the next manufacturer, leaving the end-state consumer with a more expensive product than if the government had only collected tax on that final sale. As we talked about last week, this is exactly the sort of situation that freeports were designed to circumvent.