A Judge Denies Sotheby’s Effort to Dismiss a Lawsuit That Claims the Auction House ‘Fleeced’ New York Taxpayers Out of Millions

Sotheby's said it will "continue to vigorously contest the allegations in this case, which we believe are without merit.”

Sotheby's in New York City. Photo by Michael Nagle/Getty Images.

A New York Supreme Court judge has rejected auction house Sotheby’s efforts to dismiss allegations of tax evasion that were first filed nearly a year ago by New York Attorney General Letitia James.

The three-page decision was delivered on Monday, September 27, by Judge Andrew Borrok, who seemed to double down on the attorney general’s allegations despite a vigorous denial filed by the auction house’s lawyers in late December 2020, roughly a month after the initial lawsuit.

“To wit, among other things, the well-pled complaint alleges that certain Sotheby’s employees recommended the use of and ‘even partially completed’ resale certificates for their clients and requested that Client Accounting ‘zero out’ sales tax from all invoices associated with the purchases with these false resale certificates,” according to Borrok’s decision. “[T]he complaint sufficiently alleges that Sotheby’s taxable sales were falsely stated because they excluded sales with the false resale certificates.” 

The judge ordered a preliminary conference on the case, scheduled for October 26.

New York State Attorney General Letitia James. Photo by TIMOTHY A. CLARY/AFP/Getty Images.

New York State Attorney General Letitia James. Photo by Timothy A. Clary/AFP/Getty Images.

Borrok’s focus on resale certificates relates to extensive details provided in the original lawsuit about the auction house’s alleged role in aiding a specific client (whom it did not name) to evade taxes by filing paperwork giving him benefits that are legally reserved for dealers, not private collectors. The suit alleges that “Sotheby’s knew that the collector and his company were not purchasing art for resale as art dealers.”

Sotheby’s lawyers contend that the attorney general failed to demonstrate that the house knew the documents they had submitted were false. Further, they stressed, because the state settled with the buyer in question two years ago, it has already been compensated for the unpaid sales tax.

Asked for comment on this week’s decision, a Sotheby’s spokesperson said: “We respectfully disagree with the decision and will continue to vigorously contest the allegations in this case, which we believe are without merit.”

A representative for the attorney general’s office said via email: “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 wealthy you are, no one is above the law. We look forward to making our case in court later this year.”

The attorney general’s complaint only identified the central client, Portal Equities, as a holding company based in the British Virgin Islands. However, the Wall Street Journal named the collector behind it as Isaac Sultan, president of hog farm business Atlantic Feeder Services USA LLC in Miami. Sultan is known for collecting Latin American and contemporary art, according to the Journal. Artnet News was unable to confirm the identity of the collector independently, and Sultan did not respond to repeated requests for comment.

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