Sotheby’s Agrees to Pay New York 6.25 M. To Settle Art Sales Tax Fraud Case

Sotheby’s has agreed to pay the State of New York $6.25 million to settle a lawsuit filed by Attorney General Letitia James, that alleged the auction house helped collectors in avoid sales taxes on high-value art purchases.

The New York Attorney General’s office claimed that from 2010 to 2020, Sotheby’s accepted fraudulent resale certificates from at least eight collectors, enabling them to skirt New York state sales taxes on artworks worth tens of millions of dollars. 

These resale certificates are meant to exempt dealers purchasing works for resale from paying sales tax; however, the lawsuit alleged that Sotheby’s knowingly accepted certificates for purchases intended for private use. The complaint also claimed that Sotheby’s not only accepted these bogus certificates but at times actively encouraged clients to use them and helped fill them out.

Letitia James, in a public statement, said that Sotheby’s “intentionally broke the law” to help its clients avoid millions in taxes.

In an email to ARTnews, a Sotheby’s spokesperson said the house “admitted no wrongdoing in connection with today’s settlement and remains committed to full compliance with all applicable law.”  Sotheby’s added that the allegations are related to sales activity as much as ten years old and that the house “provided much of the evidence which the AG used to obtain a settlement with the taxpayer referenced in the complaint” when it was originally filed six years ago. 

That 2018 case concerned a company called Porsal Equities which ultimately paid over $10 million in penalties for misusing resale certificates under the New York False Claims Act. 

The settlement, which the New York Attorney General said Sotheby’s can pay over three years, amounts to $6.25 million.

Sotheby’s recently closed a $1 billion investment deal with the Abu Dhabi sovereign-wealth fund ADQ, $800 million of which , the company said, will go toward cutting down the house’s $1.65 billion debt load. In the first half of 2024 Sotheby’s reported $3.2 billion in earnings, down 20 percent from 2023.

This year has marked a great deal of expansion for Sotheby’s. In July, the auction house opened a flagship Maison in Hong Kong, and in September, a new headquarters in Paris. Earlier this month, the company closed the deal of the historic Breuer building, former home of the Whitney Museum of American Art and the Frick Collection. The Breuer building, which will serve as the auction house’s New York headquarters, will be renovated by the Swiss architects Herzog & de Meuron and it set to open in the fall of 2025.