Sotheby’s sued by New York for helping client avoid taxes

Sotheby’s was accused by New York’s attorney general of helping a wealthy shipping company owner avoid paying income taxes on artwork he purchased from the auction house.

Sotheby’s allowed $27 million of art to be purchased tax-free by Porsal Equities, which is controlled by the shipping company owner, even though the auction house knew the client wasn’t an art dealer but was instead a collector buying for his personal use, the state said in a lawsuit filed Friday. Only dealers planning to resell art qualify for exemptions to city and state sales tax, the state said.

“Millionaires and billionaires cannot be allowed to evade taxes while everyday Americans pay their fair share,” New York 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.”

Robert Caplin/Bloomberg

The complaint alleges that Sotheby’s violated the New York False Claims Act by facilitating the creation and use of false tax-exemption certificates. The claim is linked to an earlier probe of Porsal Equities that led to a $10.75 million settlement, the state said.

“Sotheby’s vigorously refutes the unfounded allegations made by the attorney general, which are unsupported by both fact and law,” the auction house said in an emailed statement. “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 owner of Porsal Equities, a holding company incorporated in the British Virgin Islands, bought 35 pieces of artwork and furniture from 2010 to 2015, submitting false resale certificates to Sotheby’s, according to the court papers. Porsal is owned by a collector who has residences in New York City, as well as others around the world, the state said.

In 2018, the attorney general’s office reached a $10.75 million settlement with Porsal Equities for tax fraud in connection with more than $50 million of artwork and other goods purchased in New York from prominent art institutions. Porsal Equities couldn’t be immediately reached for comment on the lawsuit.

As part of that probe, Porsal Equities admitted it and its owner certified that they were purchasing artwork for resale when, in reality, they did it for display and enjoyment at the collector’s private residence, the state said.