In early May, New York’s Attorney General Eric Schneiderman announced that his office is “committed to rooting out tax abuses wherever we find them, especially in the art world, where the difference can be hundreds of thousands – if not millions – of dollars in lost tax revenue per sale…When art collectors don’t pay their fair share, law abiding New Yorkers should not be stuck footing the bill.”
In the same press release, the attorney general publicized one of two important settlements his office had been working toward for some time. The first, with Aby J. Rosen, a major contemporary art collector, was for $7 million. As part of the deal, Rosen also committed to adhering to a code of conduct that includes the timely reporting and paying of tax obligations.
Rosen is a well-known figure in the art world, and has held collections of works by famous artists such as Jean-Michel Basquiat, Alexander Calder, Damien Hirst, Richard Prince, Jeff Koons, and Andy Warhol.
The problem was that Rosen applied what is a legitimate resale exemption even though he did not resell the art. Instead, he “used the artwork for personal enjoyment and the enhancement of his real estate business brand, displaying it throughout his residences in New York state and throughout his real estate business offices and properties.” This by way of the formation of 22nd Century Acquisitions LLC, in 2002. The company filled out and issued resale certificates in connection with its artwork purchases, which enabled it to avoid paying New York state and local sales tax on the items it purchased. Rosen signed all resale certificates on behalf of 22nd Century.
For the next 13 years, 22nd Century purchased more than 200 works, such as furniture and jewelry, for more than $80 million. Using the resale exclusion, 22nd Century paid no sales or use tax on all but one of these purchases. Rosen signed the firm’s sales and use tax returns during those years.
Similarly, Rosen formed Lever House Artwork LLC in 2004. From 2006 through 2015, the company paid no sales or use tax on the works of art it purchased or commissioned.
Schneiderman’s press release describes Rosen’s misconduct as follows:
[B]eginning in 2002, Mr. Rosen bought or commissioned more than $80 million worth of contemporary art, but did not pay applicable State and City sales and use taxes on the purchases. Between 2002 and 2015, Mr. Rosen used two companies, known as 22nd Century Acquisitions LLC and Lever House Artwork LLC, to purchase and, in Lever House Artwork’s case, commission artwork, claiming an exclusion from sales tax on the basis that the purchases and commissions were for resale.
The second settlement was with art sales executive Victoria Gelfand. Her companies, like Rosen’s, failed to pay New York sales and use tax. As part of the agreement, Gelfand’s companies will pay $210,000 in sales and use tax combined to the state.
The investigation uncovered Gelfand’s use of two companies, between 2005 and 2013, that purchased more than 30 works for an aggregate price of more than $1 million using resale certificates. These are also famous, including John Baldessari’s “It Couldn’t Be Helped,” Cecily Brown’s “Almost Always True,” Richard Prince’s “Piney Woods Nurse,” and Cindy Sherman’s “Untitled (#217).”
These settlements do not come as a huge surprise, although officials often keep the details of their discussions under wraps, reported TheArtNewspaper in March of last year. At that time, it was “clear that something [was] afoot,” because numerous galleries received subpoenas requesting sales and shipping records.
Going back further, TheArtNewspaper described a 2003 investigation that resulted in several galleries pleading guilty to tax evasion, and a $21.2 million settlement with Dennis Kozlowski, the former chief executive of Tyco, who was an art collector. His case centered on his efforts to avoid taxes by shipping empty crates, supposedly containing art, to an out-of-New York address. In fact, the paintings, including a Monet, were delivered to his Manhattan apartment.
TheArtNewspaper acknowledged that most galleries and dealers make sure to keep records so they can defend themselves from tax fraud charges. But investigators can use that information as a springboard to determine whether the purchaser complied with the law.