Sotheby's to pay $6.25 million to settle state lawsuit alleging tax cheating by clients

Auction house Sotheby’s will pay $6.25 million to settle a lawsuit by New York State Attorney General Letitia James claiming the firm helped clients cheat their way out of paying tens of millions of dollars in sales taxes.

The firm, which has auction houses in Manhattan and across the world, will also make what prosecutors, in a press release Thursday, called "significant reforms to ensure its employees do not violate New York tax laws."

"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," James said in a statement.

A Sotheby’s spokeswoman said in an email that "These allegations relate to activity from many years ago — in some cases over a decade ... Sotheby’s admitted no wrongdoing in connection with today’s settlement and remains committed to full compliance with all applicable law."

Prosecutors described a scheme, lasting from 2010 to 2020, where Sotheby’s clients allegedly avoided paying sales taxes by claiming to be art resellers buying pieces for business, rather than personal use.

The clients allegedly used tax exemption forms called resale certificates, certifying that the art was for resale. Prosecutors said that Sotheby’s accepted the certificates from clients, even though company staff knew the art was going into clients’ private collections. In some cases, they said, Sotheby’s not only accepted the certificates but provided them to clients partly filled out.

Prosecutors did not identify clients in the press release but said at least eight clients were involved, including one, referred to in the attorney general’s lawsuit as the "Collector," who bought $27 million in art from Sotheby’s from 2010 to 2015 using resale certificates. 

The Collector settled an earlier lawsuit filed by James' office. Sotheby's provided "much of" the evidence James' office used to obtain that settlement, the Sotheby's spokeswoman wrote.