Sotheby’s Just Got Slapped With a Lawsuit by the New York Attorney General Alleging Millions of Dollars in Unpaid Taxes
Government lawyers say the auction house bilked the public out of huge revenues.
The New York State Attorney General has filed a lawsuit against Sotheby’s for “defrauding the state of New York and its taxpayers out of millions of dollars in unpaid sales tax.”
In the more-than 40-page complaint, filed in New York State Supreme Court on November 6, lawyers allege that Sotheby’s “helped wealthy clients evade taxes to boost its own sales.” The document goes into extensive detail about the auction house’s role in helping a particular client, who remains unnamed, evade taxes by filing paperwork giving him benefits that are only legally reserved for dealers, and not private collectors.
Although the collector is unidentified in the lawsuit, the complaint says he maintains residences in and around New York, runs a shipping company, and has operated at times through a British Virgin Islands-based holding company 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 unable to immediately confirm the identity of the collector independently.
Although the complaint acknowledges that the collector “fraudulently” avoided sales tax on $27 million worth of art purchased through Sotheby’s over a five-year period between 2010 and 2015, it pins the blame squarely on the auction house.
“Sotheby’s enabled the collector to buy art tax-free by accepting his representation that he was an art dealer instead of a collector who bought for his own personal use, even though Sotheby’s knew that his representation was false.”
Asked for comment, a Sotheby’s representative told Artnet News in an email: “Sotheby’s 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 10 years ago, which, as the Attorney General noted in her complaint, was settled two years ago.”
The complaint frequently refers to an unidentified Sotheby’s junior staffer, described as a key client manager or “KCM,” and includes specific details of how she courted the client.
“The collector came to Sotheby’s in 2010 to browse Latin American art prior to an auction,” the lawsuit says. “At the time, the department was leanly staffed, and the KCM—then a junior cataloguer, just three years out of college—gained an opportunity to walk the collector through the pieces for sale. They quickly formed a strong connection; the collector realized she was from his home country, and was very impressed with her knowledge of Latin American art. She requested and received permission to become his KCM.”
It then alleges that the staffer helped the collector fill out a resale certificate, which offers a tax shield for dealers looking to buy works and put them back onto the market, even though the collector was not eligible for the credit.
The complaint further elaborates how auction specialists’ relationships with clients are built, and includes specific references to author Don Thompson’s 2010 book The $12 Million Stuffed Shark and coverage published by the Art Newspaper.
“As one writer in the industry observed, success in the fierce competition between auction houses has hinged in recent times on their ability to court prospective buyers… The competition is so fierce, in fact, that specialists may not only simply wine and dine prospective clients, but may go to significant and unusual lengths—such as throwing a birthday party for a client’s child—in order to grow relationships and boost sales,” according to the complaint.
“Millionaires and billionaires cannot be allowed to evade taxes while every day Americans pay their fair share,” Attorney General Letitia James said in a statement. “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 April, Christie’s agreed to pay $16.7 million to the Manhattan District Attorney for failing to properly collect New York sales tax between 2013 and 2017. The settlement followed a lengthy investigation into 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, which were based on taxable sales made between 2013 and 2017 that totaled $189 million, were to be provided to New York State. The District Attorney’s office said that Christie’s “admitted to failing to register to collect and to collect New York and local sales tax” on certain purchases made in or delivered to New York, “despite having a legal obligation to do so.”
Follow Artnet News on Facebook:
Want to stay ahead of the art world? Subscribe to our newsletter to get the breaking news, eye-opening interviews, and incisive critical takes that drive the conversation forward.