New York Sues Sotheby’s For Helping Collector Evade Millions of Sales Tax

“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.” said New York Attorney General Letitia James. 

New York has recently filed a lawsuit against Sotheby’s for allegedly defrauding the state by aiding a collector to avoid taxes on the purchase of millions of artworks. The international auction house might potentially have to pay a huge fine if found guilty. 

New York Attorney General Letitia James

The New York False Claims Act states that only artwork with resale certificates are eligible for tax exemption. In other words, collectors and art dealers who are reselling art can apply for tax exemption by applying for resale certificates but those purchasing art for personal purposes cannot. 

It is said that Sotheby’s accepted a total of four resale certificates from a collector, with full knowledge that the artworks involved are in fact used for personal purposes, in order to help the client evade tax. 

The art purchases which are worth US$27m happened between 2010 and 2015, including a US$5.7m painting by Jean-Michel Basquiat (the most expensive American artist) and a US$1.4m sculpture by British Indian sculptor Anish Kapoor. 

According to Attorney General James, at least 29 Sotheby’s employees were aware of the situation, meaning that they knowingly helped the client to avoid taxes, violating the New York False Claims Act. 

Basquiat is the most expensive American artist 

Anish Kapoor is a British Indian sculptor specialising in installation art and conceptual art 

The evidence is as follows:

  • the collector had not told Sotheby’s he was an art dealer and Sotheby’s knew he was actually in the shipping business
  • in 2010, Sotheby’s advised the collector he could use a resale certificate and helped complete the certificate
  • Sotheby’s sales representatives continued to communicate with the client, discussing their plans with the artworks involved
  • after displaying the artwork at the collector’s house, Sotheby’s employees went to visit the client to look at the artwork

The collector is unnamed but it is known that he or she buys contemporary art and the resale certificates were submitted under the name of his or her company- Porsal Equities.

Though unconfirmed, the Wall Street Journal reported that the collector is believed to be Isaac Sultan, the Venezuelan president of the Miami-based cargo shipper Atlantic Feeder Services USA. 

In fact, in 2018, Porsal Equities admitted the sales tax avoidance and paid the Office of the Attorney General US$10.75m for evading tax on over US$50m worth of artwork. Therefore, the target for the Office is Sotheby’s this time around instead of Isaac Sultan or Porsal Equities. 

The following is Sotheby’s official reply: 

“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 ten years ago which, as the Attorney General noted in her complaint, was settled two years ago.”