Sotheby’s in New York is facing a lawsuit from the state Attorney General. The world-famous art hub is facing accusations that it helped a wealthy overseas client avoid paying millions in sales tax. 

The Lawsuit

The lawsuit was filed by New York State Attorney General Letitia James. The suit alleges that Sotheby’s knowingly helped a wealthy client avoid millions of dollars in taxes by filing false certificates.

Per a press release by James’ office, “New York Attorney General Letitia James today filed a lawsuit against the international auction house Sotheby’s for defrauding the state of New York and its taxpayers out of millions of dollars in unpaid sales tax. The complaint alleges that Sotheby’s violated the New York False Claims Act by facilitating 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.

‘Millionaires and billionaires cannot be allowed to evade taxes while every day Americans pay their fair share,’ said Attorney General James. ‘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.’ 

In 2018, the collector’s company, Porsal Equities, entered into a settlement agreement with the Office of the Attorney General (OAG) in which Porsal admitted it had improperly used resale certificates in violation of the New York False Claims Act. The OAG investigation found that Porsal Equities admitted that it 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.”

Sotheby’s Knew, and Looked the Other Way

Sotheby's Art

In the lawsuit, James’ office alleges that Sotheby’s knew the art was not being purchased for resale, but overlooked the inconsistencies.  “Today’s lawsuit — filed in New York County State Supreme Court — alleges that Sotheby’s knew that the collector and his company were not purchasing art for resale as art dealers in the normal course of business, but accepted their resale certificates anyway, and, in fact, facilitated the creation and use of these resale certificates.

In 2010, Sotheby’s advised the collector he could use a resale certificate and helped complete the certificate, including adding the false declaration that he was an art dealer even though, in reality, the collector had not told Sotheby’s he was an art dealer and Sotheby’s knew he was actually in the shipping business. Sotheby’s not only accepted this resale certificate, but, by 2015, had accepted three more equally false certificates from Porsal Equities facilitated by Sotheby’s employees, despite overwhelming evidence that the collector and Porsal Equities were not art dealers and were only buying art for personal use.”

Auction Houses are Controversial

Although Sotheby’s is known as one of the most reputable art auction hubs in the world, the existence of the institutions is often controversial. While it can facilitate the exchange of art between museums and galleries, critics suggest that the auction houses place too much power in the hands of private buyers, to the detriment of the public. If Sotheby’s is defrauding US taxes by helping wealthy clients avoid their tax burden, that’s one more strike against them. It means wealthy collectors are expanding their collections and bilking taxpayers out of millions of dollars in the process.

Art exchanges can turn quickly litigious, but this suit against Sotheby’s is raising red flags. As one of the most reputable auction hubs in the world, Sotheby’s is the gold standard against which other similar institutions are held. The lawsuit will have far-reaching implications as Sotheby’s scrambles to prove that they were unaware of the deception. 

In a statement regarding the suit, Sotheby’s has responded, “Sotheby’s in a statement issued Friday said that it ‘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.’”

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