Sotheby’s will pay New York State $6.25 million to settle a lawsuit accusing the auction house of helping collectors to avoid paying taxes on art sales worth tens of millions of dollars, according to a settlement with Attorney General Letitia James.
The government said on Thursday that Sotheby’s had helped at least eight collectors from 2010 to 2020 by knowingly accepting fraudulent resale certificates from buyers, which allowed them to forgo sales taxes. (Artworks bought by dealers solely for resale can be exempted from sales tax, but collectors who buy work for their private use must pay.) Sotheby’s neither admitted nor denied the allegations as part of the settlement.
The lawsuit said the auction house knew that the artwork was not going to be resold but accepted the certificates anyway. In several instances, the attorney general’s office said, officials at Sotheby’s did not just accept the fraudulent certificates but encouraged clients to use them, providing them with the necessary forms to fill out and even filling out portions of the documents for them.
“No one should be allowed to cheat the system and escape paying the taxes they owe,” James said in a statement. “Sotheby’s intentionally broke the law to help its clients dodge millions of dollars in taxes, and now they are going to pay for it.”
Paintings by some of the highest-selling artists in the market were involved in the tax scheme, according to the attorney general’s office. That list of nearly 40 artists included Jean-Michel Basquiat, Gerhard Richter, Christopher Wool and Andy Warhol.
One Sotheby’s client bought $27 million of artwork from the auction house as part of the scheme, according to the government.
Under the settlement’s terms, Sotheby’s must create guidelines to ensure that its employees are trained on New York tax law and review important information about whether a client intends to resell the art being purchased.
The settlement follows a similar agreement in 2018 with the company Porsal Equities, which paid more than $10 million in penalties and admitted to the improper use of resale certificates in violation of the New York False Claims Act. The attorney general’s office declined to comment on other potential investigations.
James filed the lawsuit against Sotheby’s in November 2020, the beginning of an art market boom; the company recorded $7.3 billion in sales the following year.
But amid larger contractions in the market, Sotheby’s has recently suffered from declining sales and rising debts. It recently closed a $1 billion investment deal with an Abu Dhabi sovereign-wealth fund, in part to clear $800 million in debts.
“Sotheby’s is in a very strong position, both in terms of current performance and our financial position,” Karina Sokolovsky, an auction spokeswoman, said in a statement about the company’s fiscal health. “Including private sales, our overall sales exceeded $3.2 billion in the first half of 2024.”
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