The Seoul Administrative Court ruled Monday that an art collector who earned about 4.5 billion won ($3.1 million) from the sale of a Yayoi Kusama “Pumpkin” sculpture must pay income tax on the proceeds as business income.
The court said it dismissed a suit filed by the collector against the head of the Jongno Tax Office seeking to overturn the authority’s refusal to revise the tax assessment.
The plaintiff purchased the artwork in 2018 and consigned it for sale through an auction house in 2022.
The collector initially reported the 4.5 billion won gain as business income in June 2023 when filing a comprehensive income tax return. Two months later, however, the collector claimed the proceeds did not qualify as business income and sought a refund of about 153 million won in taxes.
The tax office rejected the request, prompting the collector to file an administrative lawsuit.
The plaintiff argued that the proceeds should be classified as miscellaneous income rather than business income, citing provisions of the Income Tax Act. The collector also said the work had been sold on consignment and that no personnel or facilities were maintained for art sales.
If classified as business income, the proceeds would be subject to the top comprehensive income tax rate of 49.5 percent. If treated as miscellaneous income, a 22 percent rate would apply after deductible expenses.
The court found that the collector had effectively engaged in the art retail business since first registering as an art dealer in 2009, despite repeatedly opening and closing businesses.
Between 2013 and 2022, the collector sold 16 artworks worth more than 8.4 billion won, including 14 works by Kusama.
The court ruled that the proceeds from the “Pumpkin” sale constituted business income, citing the scale, continuity and profit-seeking nature of the transactions.
“Even if the number of transactions is limited, the high value and characteristics of such artworks make it reasonable to view the activity as continuous and repetitive,” the court said.
It added that direct sales are not required to determine business income, noting that consignment sales can also constitute business activity when carried out repeatedly for profit under the seller’s responsibility.
seungku99@heraldcorp.com