The New York attorney general has filed a lawsuit against Sotheby’s for “defrauding New York State and its taxpayers out of millions of dollars in unpaid sales tax.”
In the more than 40-page complaint filed on November 6th with the New York State Supreme Court, attorneys allege that Sotheby’s “helped wealthy customers evade taxes to increase their own sales.” The document provides detailed information about the auction house’s role in assisting a specific, unnamed customer with tax evasion by submitting documents that provide benefits that are only legally reserved for dealers and non-private collectors.
Although the collector was not identified in the lawsuit, the complaint states that he is based in and around New York, operates a shipping company and at times operates through a holding company based in the British Virgin Islands, identified as Portal Equities.
According to the Wall Street Journal, the collector is Isaac Sultan, president of Atlantic Feeder Services USA LLC in Miami. Sultan is known for collecting Latin American and contemporary art, according to the Journal.
Artnet News was not immediately able to independently confirm the identity of the collector.
Although the complaint acknowledges that the collector “fraudulently” avoided sales tax on art worth $ 27 million purchased from Sotheby’s over a five-year period between 2010 and 2015, the guilt lies directly with the company Auction house.
“Sotheby’s made it possible for the collector to buy art tax free by accepting his representation that he was an art dealer rather than a collector buying for his own personal use, even though Sotheby’s knew his representation was wrong.”
A representative from Sotheby’s emailed Artnet News to comment: “Sotheby’s vigorously denies the Attorney General’s baseless allegations, which are unsupported by both fact and law. This is a problem between the taxpayer and the state five to ten years ago that the Attorney General noted in her complaint was resolved two years ago. “
The complaint often relates to an unidentified junior employee of Sotheby’s known as a Key Client Manager or “KCM” and includes specific details about how she courted the client.
“The collector came to Sotheby’s in 2010 to rummage through Latin American art before an auction,” says the lawsuit. “At the time the department was meager and the KCM – a junior cataloger then only three years away from college – was given the opportunity to tour the collector through the items for sale. They quickly formed a strong bond; The collector realized that she came from his homeland and was very impressed with her knowledge of Latin American art. She has asked and received permission to become his KCM. “
It is then alleged that the employee helped the collector fill out a resale certificate, which provides tax protection for dealers who want to buy works and put them back on the market, even though the collector was not eligible for the credit.
The complaint elaborates on how auction specialist-to-customer relationships are built, and includes specific references to Don Thompson’s 2010 book The 12 Million Stuffed Shark and coverage of Art Newspaper.
“As one writer in the industry noted, the recent success of the fierce competition between auction houses has depended on their ability to attract potential buyers. In fact, the competition is so fierce that specialists can not just simply provide potential customers with wine and food, but they can use significant and unusual efforts – such as hosting a birthday party for a customer’s child – to build relationships and increase sales “Says the complaint.
“Millionaires and billionaires cannot evade taxes while Americans pay their fair share every day,” Attorney General Letitia James said in a statement. “Sotheby’s broke the law and got New York taxpayers out of the millions just to grow their own sales. This lawsuit should send a clear message that no one is above the law, no matter how well connected or rich you are. “
In April, Christie’s agreed to pay $ 16.7 million to the Manhattan District Attorney for improperly collecting New York sales tax between 2013 and 2017. The comparison followed a lengthy investigation of the company.
As part of the settlement, Christie’s agreed to pay a lump sum of $ 10 million, followed by an additional $ 6.7 million in sales tax, penalties and interest.
The funds, based on taxable sales between 2013 and 2017 totaling $ 189 million, were to be made available to New York State. Prosecutors said that Christie’s “admitted to not registering to collect and collect New York and local sales tax” when certain purchases were made in New York or shipped to New York, “despite being required to do so by law are”.
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