NY State Attorney General files lawsuit against Sotheby’s citing millions in unpaid taxes

NY State Attorney General files lawsuit against Sotheby’s citing millions in unpaid taxes
Sotheby's New York. Courtesy Flickr Commons.

Sotheby’s has been hit with a lawsuit from the New York State Attorney General alleging that the auction house “defrauding the state of New York and its taxpayers out of millions of dollars in unpaid sales tax.” The case hinges on an unnamed collector who was purportedly treated as a collector during a transaction, which allowed the client to avoid paying certain taxes.

According to the office of Letitia James, the NY Attorney General, the auction house knowingly violated the New York False Claims Act. The press release states that Sotheby’s “[facilitated] the creation and use of false tax exemption certificates – known as resale certificates – for an art collector and major client, even though it knew the art collector was not eligible to claim the exemption.”

The purpose of such resale certificates are for art dealers who purchase artwork with the intent to resale the work. The certificates allow for tax exemptions but are not allowed for use by those who purchase or sale works for their own personal use, as is the case with a collector.

While the Sotheby’s client has not been named, the Attorney General refers to a company owned by the client, Porsal Equities, which was involved in an ongoing legal case concerning taxes. The company, based out of the British Virgin Islands, reached a $10.75 million settlement in 2018 in which the company admitted to having misused resale certificates.

In response to the lawsuit, a spokesperson for the auction house told Artnet News: “Sotheby’s vigorously refutes the unfounded allegations made by the Attorney General, which are unsupported by both fact and law. This is an issue between the taxpayer and the state dating from between five and 10 years ago, which, as the Attorney General noted in her complaint, was settled two years ago.”

The suit focuses on the auction house’s part in allowing their client to dodge taxes on the sale of $27 million worth of art, although it does acknowledge the client’s role in the ordeal. “Sotheby’s enabled the collector to buy art tax-free by accepting his representation that he was an art dealer instead of a collector who bought for his own personal use, even though Sotheby’s knew that his representation was false,” reads the claim in part.

The Attorney General’s suit also refers to an unnamed Sotheby’s employee who worked as the key client manager on the transactions and allegedly helped create the false resale certificates. The lawsuit also details the close and sometimes unusual relationships a client and auction house staff will build to secure their business.”

“Millionaires and billionaires cannot be allowed to evade taxes while every day Americans pay their fair share,” said James in a statement. “Sotheby’s violated the law and fleeced New York taxpayers out of millions just to boost its own sales. This lawsuit should send a clear message that no matter how well-connected or wealthy you are, no one is above the law.”