Part IV · Tax Regimes · No. 02

Sales and use tax

Sales tax is collected at the moment of purchase by the seller; use tax is the complementary obligation imposed on the buyer when the asset crosses into a state without sales tax having been paid. For mobile luxury assets — aircraft, yachts, vehicles, art moved between collections — the use tax is often the larger exposure.

The rule

Forty-five U.S. states and the District of Columbia impose a general sales tax on retail sales of tangible personal property. Each of those states also imposes a complementary use tax on the use, storage, or consumption of tangible personal property within the state where sales tax was not collected by the seller. The five states without a state-level sales tax — Alaska, Delaware, Montana, New Hampshire, and Oregon — operate without either tax (Alaska permits local sales taxes; the others do not).

The economic logic is simple: a state without use tax would be undercut by every adjoining state because purchasers would buy out-of-state and bring goods home. The use tax restores parity. Where sales tax is paid at purchase in another state, the buying state typically credits the tax paid against its own use-tax claim — but only up to the lower of the two rates.

The statutory basis

Sales and use tax is creature of state law. Each state has its own revenue code, its own administrative agency (usually a Department of Revenue or Department of Taxation), and its own list of exemptions and rates. The federal constitutional baseline is set by Quill Corp. v. North Dakota, 504 U.S. 298 (1992), and South Dakota v. Wayfair, Inc., 585 U.S. 162 (2018), which together establish the state's authority to require sales-tax collection from out-of-state vendors with sufficient economic nexus to the state. Neither case affects the use tax — the buyer-side obligation has always existed; its difficulty is enforcement.

Scope

Sales and use tax is the dominant tax cost on the acquisition of most luxury assets. The rate structure varies:

• Yachts: Most coastal states tax sales of vessels and tax the use of vessels brought into the state. Many states cap the tax on a single vessel sale at a fixed maximum — Florida at $18,000, North Carolina at $1,500, South Carolina at $500 — designed to keep the yacht market within state borders.
• Private aircraft: Sales and use tax can be material on a multi-million-dollar aircraft transaction. Several states offer "fly-away" exemptions for aircraft purchased in the state but flown to a base elsewhere. Montana imposes no sales tax at all, which underlies the Montana-LLC aircraft pattern.
• Vehicles: Motor vehicles are subject to sales tax in the state of titling. Cross-border purchases routinely produce use-tax liability when the vehicle is registered in the buyer's home state.
• Art: A purchase from a dealer in a sales-tax state is subject to sales tax on the gross price. Art shipped to a freeport or to an out-of-state buyer's address is typically exempt at point of sale, but use-tax exposure attaches when the work crosses into the buyer's home state.
• Jewelry and watches: Subject to sales tax at full retail rates in most jurisdictions.

Rate and computation

State rates run from 2.9% (Colorado) to 7.25% (California) at the state level, with local sales taxes (county, city, transit district) layering on. Combined rates in major U.S. cities cluster between 7% and 10%. For a $1 million luxury asset, sales tax can run $50,000 to $100,000.

The tax base is generally the gross sales price. Several states permit reduction for trade-in value (the customary motor-vehicle rule); fewer states permit the same for art or aircraft. Delivery charges, dealer-prep fees, and after-market accessories are often included in the base.

The use tax — the harder exposure

Where buyer and seller are in the same state, sales tax is collected at point of sale and the matter is closed. Use tax becomes the operative tax in three common patterns:

• Out-of-state purchase, in-state use. A New York collector buys a painting at an auction in London, ships it to New York, and is liable for New York use tax on the imported value. The auction house does not collect; the buyer self-reports.
• Mobile asset entering a state. A yacht delivered offshore (no sales tax at delivery) and later moored at a Florida marina is subject to Florida use tax on its taxable value, subject to Florida's $18,000 cap.
• Asset relocating to a state. A collector who moves residence to California and brings a previously purchased painting may face California use tax — subject to a typically applied exception for property used out-of-state for at least 90 days (the rule varies by state).

States actively enforce use tax on high-value mobile assets. Yachts are tracked through marina registrations; aircraft are tracked through tail-number identification at FBO ramps; cars are tracked through registration data sharing. State revenue agents use these data sources to identify use-tax cases.

Elections and exceptions

• Occasional-sale exemption. Most states exempt an isolated sale by a person who is not in the business of selling such property. The exemption protects estate distributions and one-off transfers, but does not protect a dealer's sale or a structured sale through an entity.
• Resale exemption. A purchase for resale is exempt at point of sale; the tax is collected from the ultimate consumer. Gallery purchases of art held in inventory are typically exempt on this basis.
• Common-carrier (interstate-commerce) exemption. A vehicle, aircraft, or vessel used in interstate commerce may be exempt or partially exempt under federal commerce-clause principles and state implementing statutes.
• Fly-away exemption. Several states exempt aircraft sold in the state if removed from the state within a defined period. The buyer must document the removal and the placement in another base of operations.
• Capped tax on vessels. Florida caps tax on a single vessel at $18,000; North Carolina at $1,500; Maryland at $15,400 for vessels exceeding a threshold. The caps are designed to retain market share against neighboring states and offshore registration.
• Charitable contribution. A donation directly to a qualified charity is typically exempt from sales and use tax at the donee, though the donor pays nothing in any event.

Interaction with other regimes

Sales and use tax stacks on top of any federal income-tax cost of the transaction. The seller's income-tax cost is the capital-gain rate; the buyer's cost is the sales or use tax. State income tax on the seller and sales tax on the buyer are independent — the buyer's tax is not paid by the seller, and vice versa.

For an aircraft or yacht to be used in a state's charter or rental business, the state's commercial-use exemption may eliminate sales tax at acquisition in exchange for collecting tax on each charter or rental transaction. The yacht-charter business and Part 135 charter entries describe the operational and substantive requirements.

Customs duty on imported luxury goods stacks on top of state use tax. A $500,000 painting imported into the United States and shipped to New York will be subject to U.S. customs duty (zero for most art under HTS heading 9701-9703), followed by New York use tax on the import value. See customs and import duties.

Common planning approaches

• Selection of titling state. Aircraft, motor vehicles, and yachts are routinely titled or registered in low- or no-tax states (Montana, Delaware, Florida). Substance — actual use, base of operations, residency of owner — drives whether the planning survives an audit in the buyer's home state.
• Offshore-flagged vessels. Yachts registered under the Cayman Islands or Marshall Islands flag, with bareboat charter arrangements, may avoid U.S. sales tax at importation by remaining in international waters or by using a documented importation pattern. State use-tax exposure remains where the vessel is moored.
• Freeport storage. Art held in a freeport remains outside the sales-tax jurisdiction of the buyer's home state, deferring use tax until the art is moved into the state.
• Like-kind exchange of real property. §1031 defers federal income tax but does not defer state sales or transfer taxes on real-property transactions. State transfer taxes are a separate cost.
• Commercial-use elections. A taxpayer placing an aircraft or yacht into a charter business may elect into a commercial-use regime that exempts the acquisition from sales tax in exchange for charter-revenue collection.

Recent developments

The Wayfair decision in 2018 expanded the universe of out-of-state sellers required to collect sales tax, sweeping in many online luxury retailers. The decision did not change the buyer's use-tax obligation but shifted enforcement closer to point of sale. State enforcement on yachts and aircraft has intensified through data-sharing arrangements with FAA, Coast Guard, and marina-registration sources.

Several states have considered eliminating or capping sales tax on art purchases to support local auction and gallery markets. New York's existing rules — sales tax applies to the gallery sale; deliveries outside New York are typically exempt — remain the principal model.

Reviewed May 2026