Sotheby’s Settles $6.25 Million Lawsuit with New York Attorney General Letitia James Over Tax Fraud Allegations.

Sotheby’s has agreed to pay $6.25 million and implement significant reforms to resolve a lawsuit filed by New York Attorney General Letitia James. The lawsuit accused the prestigious auction house of assisting clients in evading sales taxes on art purchases valued at tens of millions of dollars.

The settlement, announced on Thursday, addresses allegations that Sotheby’s facilitated fraudulent tax practices between 2010 and 2020, helping at least eight clients evade New York state sales taxes. The auction house allegedly enabled these clients to use “resale certificates”, which falsely classified them as art dealers rather than art collectors, allowing them to claim tax exemptions.

James pointed to one particularly significant case in which Sotheby’s helped a contemporary art collector—who had invested over $27 million in works by renowned artists like Jean-Michel Basquiat and Anish Kapoor—misrepresent himself as a dealer. Despite knowing the individual was a collector, certain Sotheby’s employees allegedly assisted him in displaying the artwork in his residence and even praised the collection. This deceitful use of resale certificates allowed the buyer to bypass tax obligations, costing New York millions in lost revenue.

The $6.25 million settlement covers damages, penalties, and legal expenses. While Sotheby’s did not admit to wrongdoing, the auction house agreed to settle the case to avoid the protracted costs of a lengthy legal battle.

Attorney General Letitia James emphasized the seriousness of the violation, stating, “Sotheby’s intentionally broke the law. Every person and company in New York knows they are required to pay taxes, and when people break the rules, we all lose out.”

In addition to the financial settlement, Sotheby’s has agreed to implement reforms, including a revised policy on the use of resale certificates. The auction house will also provide enhanced training to its employees to ensure that they properly assess whether art buyers are purchasing with the intent to resell.

This legal action stems from a November 2020 lawsuit, which was filed under New York’s False Claims Act. The auction house’s alleged misconduct was further compounded by an earlier case involving Porsal Equities, a company linked to an unnamed client, which settled for $10.75 million in 2018 for similar misuse of resale certificates in New York.