Sotheby’s Helped Clients Avoid Taxes on Tens of Millions of Dollars in Art Purchases
New York Attorney General Letitia James and Acting Commissioner for the New York State Department of Taxation and Finance (DTF) Amanda Hiller announced a $6.25 million settlement with Sotheby’s, Inc. (Sotheby’s) for using fraudulent methods to secure tax breaks for its clients on tens of millions of dollars of art purchases. A lawsuit brought by the Office of the Attorney General (OAG) revealed that Sotheby’s encouraged clients to fraudulently claim to be purchasing art for resale, allowing them to avoid paying sales tax on tens of millions of dollars of art they purchased from 2010 to 2020. The settlement will require Sotheby’s to pay $6.25 million to the state and make significant reforms to ensure its employees do not violate New York tax laws.
“No one should be allowed to cheat the system and escape paying the taxes they owe,” said Attorney General James. “Sotheby’s intentionally broke the law to help its clients dodge millions of dollars in taxes, and now they are going to pay for it. Every person and company in New York knows they are required to pay taxes, and when people break the rules, we all lose out. I thank Acting Tax Commissioner Hiller for her partnership in ensuring everyone pays their fair share.”
“In this case, a prominent auction house went out of its way to help wealthy clients avoid paying millions of dollars in sales taxes on their art purchases,” said Acting Commissioner and General Counsel of DTF, Amanda Hiller. “Thanks to the diligent efforts of Attorney General James and her staff, this fraudulent activity has been stopped and Sotheby’s is being held accountable.”
Attorney General James sued Sotheby’s, alleging that from 2010 to 2020, Sotheby’s clients avoided paying sales taxes by fraudulently claiming to be art resellers. These individuals included a major client identified as the “Collector,” who purchased $27 million of artwork from Sotheby’s between 2010 and 2015 using tax exemption forms known as resale certificates, which certify that a buyer is exempt from paying sales tax because the purchase is solely for resale. Sotheby’s accepted resale certificates from the Collector even though it knew that the Collector was not buying art for resale, but in fact for a personal art collection, some of which Sotheby’s personnel even helped set up for display in the Collector’s home. Attorney General James previously secured a settlement with the Collector’s company requiring them to pay over $10 million in taxes, penalties, and damages.
Additional evidence obtained by OAG revealed that from 2012 to 2020, Sotheby’s also improperly accepted resale certificates from at least seven other clients on millions of dollars of purchases despite knowing that they, too, were purchasing for personal use rather than for resale. In several instances, Sotheby’s did not just accept the false resale certificates, but suggested that its clients could use them. Sotheby’s provided clients the forms or filled out portions of the forms for them. Many times, Sotheby’s personnel were on notice that their clients intended to purchase the artwork for their personal collections, for display at their residences, or as gifts for friends or family.
Under the settlement, Sotheby’s must pay $6.25 million to New York state and undergo significant reforms. Sotheby’s must create new measures to ensure that its employees are trained in the relevant provisions of New York tax law and review important information about whether a client intends to resell the art being purchased. This settlement follows an earlier settlement resolving the Attorney General’s investigation against the Collector’s company, Porsal Equities, which agreed to pay over $10 million in taxes, penalties, and damages and admitted to improperly using resale certificates to purchase art for personal use in violation of tax laws and the New York False Claims Act.
Attorney General James would like to thank the New York State Department of Taxation and Finance for its significant contributions to this case.
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