Walking on Air
Though Oregon is a no-tax state, it has two freeports where businesses can avoid customs taxes. Is it worth warehousing my art in a freeport warehouse with the expectation that it will go up in value and be sold where it will be taxed?
My naivety shows! I haven’t thought much about the pros and cons of freeports or free trade zones as they are sometimes called, until rereading The Medici Conspiracy: The Illicit Journey of Looted Antiquities–From Italy’s Tomb Raiders to the World’s Greatest Museums by Cecilia Todeschini. The book is about an art dealer who operated out of a freeport in Switzerland. He sold millions of dollars of illegally acquired antiquities to museums like the Getty and Metropolitan Museum of Art. After exploring Freeport’s in more detail, I found that his conniving ways were more widely practiced than I originally thought. The global art market, estimated to be $65.1 billion in 2021, is riddled with fraud.
According to the Encyclopedia Britannica, a freeport is a lot with a large warehouse located near an international air or shipping port. It is where goods are landed, handled, manufactured or reconfigured, and reshipped without the intervention of customs authorities. Since these free zones are outside the jurisdiction of any country, businesses avoid paying import duties. They provide a legal way for dealers and collectors to avoid import and export documentation, taxes, and insurance costs while storing or selling expensive works of art. No one knows if art stored in a freeport warehouse was acquired through legal or illegal channels.
Freeports first emerged in nineteenth-century Switzerland where secure storage facilities held valuable agricultural and personal commodities in transit without being taxed. These isolated, enclosed, policed areas with facilities for loading, unloading, storing manufacturing, and shipping by land, water, or air provide legal protection for businesses dealing in illicit trade.
The ostensible purpose of a freeport is to help businesses compete in the global economy. Since lower tariffs are put on imported component parts they can be manufactured and exported from there at competitive prices. Governments consider them to be good investments because they stimulate trade. The question is since the businesses don’t pay taxes, how do they really benefit society?
Free Trade Zones are havens for money laundering and tax evasion. With less red tape and taxation, ownership is concealed while trade is conducted untaxed. Bad actors in the art world commonly use it to buy and sell illegally acquired antiquities and fine art. Since there is no oversight no one knows what is stored in these warehouses.
Consider the following: Art purchased at a Detroit gallery would cost the buyer 6 percent over the price in sales tax. A Californian would pay 7.25 percent more. To avoid paying sales taxes, many collectors buy and store their art in a freeport, speculating that the price of the piece will escalate in value. I found the art trail reported by TAXVOX to be most interesting.
“Consider the sales trail of the most expensive painting ever purchased, the Salvator Mundi. In 2005, an art hunter bought the painting for $1,175 at a New Orleans estate sale. In 2013, after experts asserted the painting was by none other than Leonardo da Vinci, art dealer and freeport magnate Yves Bouvier purchased the canvas for $80 million. The next day he sold it, tax-free in his freeport, to Russian fertilizer tycoon Dmitry Rybolovlev for $127.5 million.
Four years later, a buyer widely reported to be working on behalf of Saudi Arabia’s Crown Prince Mohammed bin Salman purchased the painting at New York auction house Christie’s for $450.3 million.
Normally, a buyer in New York State would owe 8.875 percent sales tax on the purchase. In this case: a cool $39.9 million. Alas, New York State has not collected a dime. Originally, the painting was scheduled to be exhibited at the Louvre Abu Dhabi. But it’s not there. Nobody knows, or is saying, where it went.”
Globally today, about 3,500 freeports operate with the content of their warehouses unknown. When I asked friends about them, not one was aware of their existence. There are approximately 298 freeport zones in the United States (statistics vary). Oregon has two, New York has sixteen, California seventeen, Michigan seven, etc. What does it mean to the economy of these states? There are also 400 sub or single-purpose zones that permit businesses outside the confines of the freeport, to have the same benefits as those that are inside.
If freeports are so important to trade, why isn’t the entire country one big free trade zone? Who benefits from warehousing and selling at a freeport? I’d like to know more.
Art is always for sale. contact me at marilynne@eichingerfineart.com
Walking on Air is a framed, acrylic on canvas painting / 26.5” x 49.5”/ available for $850. Oregon does not have a sales tax.
Do you have an insight into freeports? Do comment below.
references:
Berniker, T. (2020) Behind Closed Doors: A Look At Freeports, Center for Art Law. retrieved from https://itsartlaw.org/2020/11/03/behind-closed-doors-a-look-at-freeports/#:~:text=While%20the%20term%20%E2%80%9Cfreeport%E2%80%9D%20is,of%20Customs%20and%20Border%20Patrol.
Wikipedia website. Foreign-trade zones of the United States. retrieved from https://en.wikipedia.org/wiki/Foreign-trade_zones_of_the_United_States
Forsters Website. (2021) Freeports — at the good, the bad or the ugly? retrieved from https://www.forsters.co.uk/news/blog/freeports-good-bad-or-ugly
Zaewraky, R. (2022)Does the World Need Tax-Adantaged Art Feeeports? TAXVOX Tax Policy Center. retrieved from https://www.taxpolicycenter.org/taxvox/does-world-need-tax-advantaged-art-freeports
Kim, L. (2020)Where the Superrich Store their Art to Avoid Taxes. Town and Country. retrieved from https://www.townandcountrymag.com/leisure/arts-and-culture/a35032655/what-is-a-freeport-art-collections/
TETRA consultant Website. Free trade Zones in the United States. retrieved from https://www.tetraconsultants.com/jurisdictions/usa-free-trade-zones/
