Megadealer Larry Gagosian’s empire is on the hook for a $4.28 million New York state tax bill, New York State Attorney General Eric Schneiderman announced yesterday, as reported by the New York Times.

“There is one set of rules for all, and that includes art dealers and collectors,” said Schneiderman in a statement.

According to Schneiderman, Gagosian Gallery failed to pay state sales tax on hundreds of transactions conducted between 2005 and 2015. Gagosian has agreed to pay; the settlement covers back taxes as well as interest and penalty fees. The Associated Press reports that Schneiderman pegs the gallery’s annual sales at a cool $1 billion. Gagosian boasts a global empire of some 16 galleries, the latest in San Francisco.

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“Those who evade art taxes potentially deprive the state of millions of dollars, and ordinary New Yorkers are stuck footing the bill,” Schneiderman told the Times.

Gagosian Gallery. Courtesy of Gagosian Gallery.

The taxes in question are linked to nearly $40 million in art sold and shipped to New York customers by the gallery’s California affiliate, Pre-War Art Inc. Gagosian is president of Pre-War, which has a New York bank account, leading state investigators to conclude that there was a “substantial nexus” between the two companies. There was no evidence of criminal activity on the part of the gallery.

The key issue, according to Schneiderman, is that art shippers are not common carriers, such as UPS. Under the state’s findings, shipping art through what he defines as a private carrier legally transfers possession to the buyer before the art has left New York, meaning that the the transactions are subject to state sales tax.

This is a new, stricter interpretation of state tax law, New York art lawyer Joshua Rubenstein told the Times, noting that “this has huge implications for doing business in a way that everyone thought was acceptable.” Sellers of fine art and luxury goods are all potentially affected.

The opening reception for a Julian Schnabel exhibition at Gagosian Gallery Beverly Hills. Photo Frazer Harrison/Getty Images.

“Although we cannot comment on these findings, we accept and will fully comply with the terms of the settlement to bring closure to this matter,” said the gallery in a statement issued yesterday.

The gallery will create a new shipping division, GG Shipping, to oversee delivery of art to out-of-state buyers. Pre-War will also share records of all of its transactions with the Attorney General’s office for the next six years.