The state of New York is suing international auction house Sotheby’s for allegedly helping a wealthy art collector evade sales tax on $27 million worth of artworks over a period of five years.
In a lawsuit filed on Friday, Attorney General Letitia James claims that Sotheby’s violated the New York False Claims Act by facilitating the creation and use of fraudulent tax exemption certificates. Known in the industry as resale certificates, these allow art dealers and advisors to enjoy tax-free art purchases by indicating that they intend to resell the works.
“Millionaires and billionaires cannot be allowed to evade taxes while every day Americans pay their fair share,” Attorney General James said 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.”
According to James, Sotheby’s knew that the collector and his company, Porsal Equities, were not purchasing art for resale but accepted their certificates anyway — and actively assisted in creating them.
In 2018, Porsal Equities entered into a $10.75 million settlement with the Office of the Attorney General (OAG) and admitted to improperly using resale certificates. The OAG found that the company and its owner “certified that they were purchasing artwork for resale when, in reality, they were purchasing the artwork for personal purposes — namely, for display and enjoyment at the collector’s private residence.”
Last week’s lawsuit implicates Sotheby’s in the fraud. In 2010, it claims, a sales representative advised the collector that he could use a resale certificate, helped complete it, and added a false declaration that the collector was an art dealer, when the company knew he was actually in the shipping business. By 2015, the auction house had accepted three more equally false certificates for Porsal Equities.
“In doing so, Sotheby’s employees effectively enabled the Collector and Porsal Equities to receive substantial discounts — at the expense of New York State’s taxpayers — and thus remain satisfied and loyal clients,” the suit says.
However, Sotheby’s denies having been involved in tax evasion practices. “Sotheby’s vigorously refutes the unfounded allegations made by the Attorney General, which are unsupported by both fact and law,” a spokesperson for the house told Hyperallergic. “This is an issue between the taxpayer and the state dating from between five and ten years ago, which, as the Attorney General noted in her complaint, was settled two years ago.”
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