'No matter how wealthy you are, no one is above the law': New York court rejects Sotheby's attempt to dismiss suit alleging it helped collector evade tax on $27m of art

Attorney general claims the auction house created and used tax exemption certificates that falsely presented the buyer as an art dealer in order to dodge payments. Sotheby's says it will continue to contest the case

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Sotheby's New York headquarters on York Avenue

Courtesy of Sotheby's

Sotheby's New York headquarters on York Avenue

Courtesy of Sotheby's

Last October, the New York Attorney General Letitia James filed a lawsuit against Sotheby’s alleging that, between 2010 and 2015, the auction house helped a “valued client” avoid paying city and state sales tax on $27m in art purchases in order to boost its own sales.

On Monday, the Supreme Court of the State of New York denied Sotheby’s attempt to dismiss the case.

The initial complaint alleges that Sotheby’s created and used tax exemption certificates that falsely presented the buyer as an art dealer, allowing him to take advantage of a New York law that exempts art dealers from paying sales tax on art purchases if they are adding to an inventory from which they plan to resell.

The purchases were made via a British Virgin Islands entity called Porsal Equities, which is owned by the collector. While the collectot is not named, the Wall Street Journal reported last year that they are believed to be Isaac Sultan, the Venezuelan president of the Miami-based cargo shipper Atlantic Feeder Services USA, though this is unconfirmed.

Monday’s decision alleges that the auction house “willfully turned a blind eye to whether an auctioned item was purchased for resale” in addition to “actively conspiring with the collector to knowingly conceal or knowingly and improperly avoid and decrease the obligation to pay or transmit money to the state through the use of false resale certificates”.

It adds that “the well pled complaint alleges that certain Sotheby’s employees recommended the use of and ‘even partially completed’ resale certificates for their clients.” The initial suit alleges that in 2010, Sotheby’s advised the client that he could use this method to avoid taxes despite knowing that he was not an art dealer, and that Sotheby’s employees helped install these works of art in the clients home.

Works of art purchased in this manner include pieces by Jean-Michel Basquiat and Anish Kapoor. In 2018, the client’s ​offshore ​company Porsal Equities reached a $10.75m settlement with the state of New York over “tax fraud in connection with over $50m of artwork and other goods purchased in New York from prominent art institutions.” Sotheby's provided evidence during this investigation.

“Sotheby’s violated the law and fleeced New York taxpayers out of millions just to boost its own sales,” says New York Attorney General Letitia James. “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.”

In response, Sotheby's tells The Art Newspaper: “We respectfully disagree with the decision and will continue to vigorously contest the allegations in this case, which we believe are without merit.”

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