Sotheby’s has come out swinging against New York Attorney General Letitia James after her office alleged that the auction house bilked the public out of huge tax revenues in a lawsuit filed in early November. The AG alleged that a collector had evaded taxes on $27 million worth of art purchases—and that Sotheby’s helped them do it.
On Friday, Sotheby’s filed a 27-page memo in New York State Supreme Court asking a judge to dismiss the case. Attorneys for Sotheby’s cited several reasons, including that the attorney general had failed to adequately argue that the auction house had an obligation to collect tax.
Attorney General James’s more than 40 page complaint, filed on November 6, accused Sotheby’s of helping “wealthy clients evade taxes to boost its own sales.” The lawsuit went into extensive detail about the house’s role in aiding a particular client, who it did not name, evade taxes by filing paperwork giving him benefits that are legally reserved for dealers, not private collectors.
In its response, Sotheby’s lawyers contended that the attorney general had failed to demonstrate that the house knew the documents they had submitted were false. Plus, they stressed, because the state settled with the buyer in question two years ago, it has already been compensated for the unpaid sales tax.
The attorney general is “seeking to punish rather than simply recover sales tax,” Sotheby’s lawyers argued.
Sotheby’s declined to comment further. A representative previously told Artnet News that the house “vigorously refutes the unfounded allegations made by the attorney general, which are unsupported by both fact and law.”
While the attorney general’s complaint only identified the central client, Portal Equities, as a British Virgin Islands-based holding company, the named the collector behind it as Isaac Sultan, president of Atlantic Feeder Services USA LLC in Miami. Sultan is known for collecting Latin American and contemporary art, according to the . Artnet News was unable to confirm the identity of the collector independently; Sultan did not respond to a request for comment.
The original complaint lays out how an unidentified Sotheby’s junior staffer, described as a key client manager or “KCM,” courted the collector. It alleged that the staffer helped the client fill out a resale certificate, which offers a tax shield for dealers looking to buy works and put them back on the market, even though the collector was not eligible for the credit.
In its response, Sotheby’s lawyers wrote that the attorney general “is attempting to do an end-run around the tax law, seeking to cast aside decades of regulatory guidance and case law governing the circumstances under which sellers can properly accept resale certificates from their customers. This, the [Office of the Attorney General] cannot do.”
Plus, Sotheby’s repeatedly emphasized, it had no knowledge that the resale certificates provided by the collector were false. Rather than executing a conspiracy to avoid tax, the auction house argued, the manager was simply “inadequately trained.”
The attorney general’s opposition brief is due by January 29; Sotheby’s reply will follow on February 19.
Asked for comment, a representative for the attorney general’s office reiterated Letitia James’s previous statement at the time of the lawsuit’s filing: “Millionaires and billionaires cannot be allowed to evade taxes while every day Americans pay their fair share. Sotheby’s violated the law and fleeced New York taxpayers out of millions just to boost its own sales. This lawsuit should send a clear message that no matter how well-connected or wealthy you are, no one is above the law.”