NEW YORK – Sotheby's helped an art collector dodge millions of dollars in New York sales taxes, the state attorney general said in a lawsuit filed Friday, accusing the prominent auction house of accepting bogus documentation to spare a top client a tax bill.
The case involves $27 million worth of purchases of pieces by such artists as painter Jean-Michel Basquiat and sculptor Anish Kapoor, and it portrays Sotheby's as so eager to keep a top client's business that staffers enabled him to pass himself off as an art dealer for tax purposes.
“Sotheby’s violated the law and fleeced New York taxpayers out of millions just to boost its own sales," Attorney General Letitia James, a Democrat, said in a statement.
The lawsuit comes after the collector’s art holding company, a British Virgin Islands-based concern called Porsal Equities Ltd., settled with the attorney general’s office in 2018. Porsal agreed to pay $10.75 million in taxes, damages and penalties over allegations that it skirted sales tax on more than $50 million in art buys from various entities in New York.
Sotheby’s said it “vigorously refutes” the allegations, calling them unfounded and “unsupported by both fact and law.”
“This is an issue between the taxpayer and the state,” the auction house said in a statement, noting that the collector and the attorney general settled in 2018.
The attorney general's office hasn't publicly identified the collector. The lawsuit describes him as someone who runs a successful shipping business, fancies Latin American art, lives outside the U.S. and has homes around the world, including a New York City apartment.
According to the lawsuit, he made a 2010 visit to Sotheby's New York City headquarters and met a junior staffer keen to cultivate him as a client. After the collector asked why some art purchases aren't subject to sales tax, she provided him with what's known as a “resale certificate” form and partly filled it out.
The document is meant to provide a tax exemption only to art dealers buying items for their business inventory and resale. Other buyers generally owe New York state and city sales tax on art purchased and delivered in the city.
The staffer — and, over time, more than 20 colleagues — knew the client was buying art for his own enjoyment, according to the lawsuit. She arranged to have some pieces installed at his Manhattan apartment, and she and some coworkers went there to see a $5.7 million Basquiat painting he bought via Sotheby's in 2012.
The collector, sometimes through Porsal Equities, bought $27 million worth of artwork through Sotheby's tax-free from 2010 to 2015, thanks to the resale certificates, the lawsuit said.
Among the purchases was a $1.4 million piece by Kapoor, whose work includes the stainless steel sculpture known as The Bean in Chicago's Millennium Park. Sales tax on the collector's 2010 Kapoor purchase alone would total over $126,000, according to the lawsuit.
It seeks unspecified damages and penalties.