The New York State Tax Appeals Tribunal held that a limited liability company was entitled to a refund of sales tax paid on the purchase of a one-half interest in a Pablo Picasso painting because the taxpayer leased its share of the painting on the same day the painting was purchased. On April 20, 2015, an LLC and an individual (lessee) each purchased a one-half interest in the painting and paid sales tax on the total sales price. On the same day, the petitioner registered as a sales tax vendor with Department of Taxation and Finance. The lessee and the LLC also entered into a written one-year lease agreement that set forth that annual rental payment plus applicable sales tax on April 20, 2015. One year later, the LLC filed a refund claim for the sales tax paid on its one-half interest in the painting. The Department denied the refund claim, and the Division of Tax Appeals upheld the refund denial.
However, the Tribunal reversed the Division of Tax Appeals’ determination, holding that the petitioner established that it purchased the painting “for one and only one purpose: resale.” The Tribunal explained that liability for sales tax occurs at the time of the transaction and that the LLC established that at the time of purchase it intended to lease its one-half interest in the painting. The Tribunal was unpersuaded that the LLC could at some point divert the painting to its own collection was evidence of the petitioner’s intent at the time of purchase.