Sotheby’s will pay New York State $6.25 million to settle a lawsuit in which the auction house was accused of knowingly accepting fraudulent resale certificates from buyers, allowing them to forgo sales taxes on art pieces worth tens of millions of dollars, according to a settlement with Attorney General Letitia James.
The lawsuit said that Sotheby’s knew that the artwork was not going to be resold but accepted the certificates anyway.
“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.”
Authorities said on Thursday that Sotheby’s had helped at least eight collectors from 2010 to 2020. In several instances, 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, the attorney general’s office reported.
While artworks bought by dealers solely for resale are permitted to be exempt from sales tax, collectors who buy work for their private use must pay.
One Sotheby’s client bought $27 million of artwork from the auction house as part of the scheme, according to the government.
James’ office said that paintings by some of the highest-priced artists in the market were involved in the tax scheme. Jean-Michel Basquiat, Gerhard Richter, Christopher Wool and Andy Warhol are just a few of the nearly 40 artists included in that list.
A spokeswoman for Sotheby’s, Karina Sokolovsky, said in a statement on Thursday that the allegations are related to activity from many years ago and that the company had provided much of the evidence used by the attorney general for a previous settlement.
“Sotheby’s admitted no wrongdoing in connection with today’s settlement and remains committed to full compliance with all applicable law,” she said.
Amid larger contractions in the market, Sotheby’s has recently suffered from declining sales and rising debts, The New York Times reported. It recently closed a $1 billion investment deal with an Abu Dhabi sovereign-wealth fund, in part to clear $800 million in debts. The auction house said that when including private sales, its sales exceeded $3.2 billion in the first half of 2024.
Under the settlement’s terms, Sotheby’s must now create guidelines to ensure that all of its employees are trained on New York tax law and review important information about whether a client intends to resell the art being purchased.
