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Sotheby’s to Pay $6.25M Settlement to NY State for Alleged Tax Fraud
The auction house was accused of helping clients avoid paying taxes on millions of dollars’ worth of art purchased from 2010 to 2020.
Sotheby’s will pay millions of dollars to New York State to settle a tax fraud lawsuit the state filed against it in 2020. (Image courtesy of Wikimedia Commons/ajay_suresh)
New York—Sotheby’s Inc. has reached a $6.25 million settlement with New York State in a now 4-year-old lawsuit that accused the auction house of fraudulently securing tax breaks for clients purchasing artwork.
The auction house allegedly helped clients avoid paying taxes on tens of millions of dollars’ worth of art purchased between 2010 and 2020, New York Attorney General Letitia James said when announcing the settlement last week.
The lawsuit, brought by James’ office in November 2020, claimed Sotheby’s encouraged clients to use tax exemption forms known as resale certificates, which certify that a buyer is exempt from paying sales tax because the purchase is for resale only.
It then accepted these certificates, even though the auction house allegedly knew these clients were buying the art for themselves, not to resell it.
Sotheby’s did not respond to National Jeweler’s request for comment but a Reuters report said the company did not admit or deny wrongdoing, and said it “settled to avoid the time, expense, and distraction of litigation.”
James said one of Sotheby’s clients, referred to as the “Collector,” purchased $27 million worth of art from the auction house between 2010 and 2015 using these forms.
She said Sotheby’s accepted resale certificates from the Collector even though it knew they were not buying art for resale but for a personal art collection, some of which Sotheby’s employees helped to set up for display in the Collector’s home.
James previously had secured a settlement with the Collector’s company, Porsal Equities, requiring it to pay more than $10 million in taxes, penalties, and damages for being in violation of tax laws and the New York False Claims Act.
“No one should be allowed to cheat the system and escape paying the taxes they owe,” she said.
“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.”
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The auction house allegedly helped clients avoid paying taxes on tens of millions of dollars’ worth of art purchased between 2010 and 2020, New York Attorney General Letitia James said when announcing the settlement last week.
The lawsuit, brought by James’ office in November 2020, claimed Sotheby’s encouraged clients to use tax exemption forms known as resale certificates, which certify that a buyer is exempt from paying sales tax because the purchase is for resale only.
It then accepted these certificates, even though the auction house allegedly knew these clients were buying the art for themselves, not to resell it.
Sotheby’s did not respond to National Jeweler’s request for comment but a Reuters report said the company did not admit or deny wrongdoing, and said it “settled to avoid the time, expense, and distraction of litigation.”
James said one of Sotheby’s clients, referred to as the “Collector,” purchased $27 million worth of art from the auction house between 2010 and 2015 using these forms.
She said Sotheby’s accepted resale certificates from the Collector even though it knew they were not buying art for resale but for a personal art collection, some of which Sotheby’s employees helped to set up for display in the Collector’s home.
James previously had secured a settlement with the Collector’s company, Porsal Equities, requiring it to pay more than $10 million in taxes, penalties, and damages for being in violation of tax laws and the New York False Claims Act.
“No one should be allowed to cheat the system and escape paying the taxes they owe,” she said.
“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.”
The attorney general’s office also claimed that from 2012 to 2020, Sotheby’s improperly accepted resale certificates from at least seven other clients on millions of dollars of purchases despite knowing they were buying art for their personal collections.
In several instances, Sotheby’s did not just accept the false resale certificates, but suggested its clients use them, said James, providing the forms and filling out portions of it for them.
“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 Amanda Hiller, acting commissioner and general counsel of New York State Department of Taxation and Finance.
“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.”
In addition to paying $6.25 million, Sotheby’s has to undergo reforms as part of the settlement, including creating new measures to ensure employees are educated properly on New York tax law and reviewing information about whether a client intends to resell the art being purchased.
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