Sale of art work by a Money Purchase Plan

A Money Purchase Plan invested in art work that has appreciated in value. The art work will be sold by the Plan in state. Typically when art wok is sold within state, sales tax must be paid. Are there any justifications for to a qualified ERISA plan being exempt from state sales tax upon sale of a plan asset, art work? I don't see an ERISA preemption argument since the art work will leave the plan and be taxed as a non-plan asset when distributed and sold. 

A court likely would find not preempted a State’s general sales tax that applies widely with no particular hook to employee benefits.

For one exposition of that idea, read https://cases.justia.com/federal/appellate-courts/ca6/12-2264/12-2264-2016-07-01.pdf?ts=1467388843.

Unless a particular precedent of the U.S. Supreme Court (or at least the Federal circuit in which the matter would litigate) fits and controls your client’s situation, there usually are arguments that point in another direction. And even if a precedent controls, one might argue that the precedent is incorrect.

If a big-enough amount of the would-be tax calls for the analysis, the plan’s fiduciary would—perhaps with your law firm’s advice—estimate the probability-discounted refund the plan could win against the estimated expenses of litigating the plan’s refund claim.

Even if the State’s law provides an award on a showing that the government’s position was not merely incorrect but also lacked a good-faith argument, a fiduciary likely should run a cost-benefit analysis assuming no order for the government to reimburse any portion of the taxpayer’s attorneys’ fees.

Even if the circumstances otherwise call for cost-benefit analysis about whether to assert the non-application of the tax, your client might want first your advice about whether the sales tax is imposed on the seller, or on the buyer (with a requirement for the seller to collect and pay over the tax). If the sales tax is imposed on the buyer, there might be little or nothing for that person to litigate.

Isn't it the buyer who pays the sales tax? But then the hassle is for the plan to collect and remit.

I know when you buy a car from an individual you don't pay sales tax to the person but have to pay the sales tax when you go to register it. Might there be a similar mechanism available here?

Another issue which no one seems to have picked up on is whether the art work were acquired by a participant's self-directed account. If it were, then the value of the art work is considered a distribution and taxable under Code Section 408(m). It appears to be taxable at least in the year in which the work of art is acquired. I know that there is a recent case decided by the US Tax Court on this. Perhaps the IRS takes the position that as long as the asset is retained by the plan, it is considered a taxxable distribution in each year in which it continues to be so held.

Assuming that there is no ERISA preemption, which seems likely, the answer will vary from state to state.  In some states, such as Maine, this might be exempt as a "casual sale."

23 hours ago, CuseFan said:

Isn't it the buyer who pays the sales tax? But then the hassle is for the plan to collect and remit.

If sales tax applies, sellers are required to pay the sales tax whether or not they collected it from the buyer.