NY Resale Certificate Investigation

The NY Times has an interesting article on an investigation into dealers and others who have a resale certificate and display the works in their homes.  The NY attorney general is going after individuals who are abusing the the resale certificates which allows dealer to avoid paying NY sales tax for objects and works which are meant to be resold.

There have been some rather large settlements. It seems the NY AG is targeting the art world, as they have also been cracking down and investigating  tax avoidance for objects shipped out of state.

The NY Times reports

Aby J. Rosen, the Manhattan real estate developer and art collector, is well known for exhibiting works from his collection at the landmark Seagram Building and at Lever House, both on Park Avenue, as well as at 530 Park Avenue, a 19-story residential condominium. He also has five pieces by Picasso in his Manhattan home, and a controversial 33-foot-tall bronze sculpture of a pregnant woman with an exposed fetus on the grounds of his estate in Old Westbury, N.Y., on Long Island.

That $2.5 million, 13-ton sculpture by Damien Hirst is one of 200 artworks that have put Mr. Rosen at the center of another controversy — this one involving unpaid taxes.

The New York attorney general, Eric T. Schneiderman, announced a $7 million settlement with Mr. Rosen on Tuesday for failing to pay taxes on $80 million in artwork that he had bought or commissioned since 2002.

Art dealers who buy works solely for resale do not have to pay sales taxes. But the attorney general said art buyers like Mr. Rosen could not avoid sales or use taxes by claiming that the artwork they purchased was for sale, while treating the pieces as they would their personal possessions.

Mr. Rosen used the artwork for his own enjoyment or to enhance the value of his real estate brand, according to the attorney general’s office.

“We are 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,” Mr. Schneiderman said.

“Law-abiding New Yorkers should not be stuck footing the bill for those who fail to pay their fair share.”

Mr. Schneiderman said his office had “uncovered serious abuses” of tax law in the course of the investigation, and he simultaneously announced a separate $210,000 settlement with Victoria Gelfand, an art dealer who had not paid sales or use taxes on 31 works bought between 2005 and 2013, including John Baldessari’s “It Couldn’t Be Helped,” Richard Prince’s “Piney Woods Nurse” and Cindy Sherman’s “Untitled No. 217.”

Ms. Gelfand is a director of the Gagosian Gallery, but the settlement involved works that she bought over the past eight years through her own company, Artemis, said Deirdre A. McEvoy of Patterson Belknap Webb & Tyler, who is representing Ms. Gelfand.

Ms. Gelfand intended to sell the works, Ms. McEvoy said, and she displayed some of the unsold art in her home.

When dealers buy art, they customarily submit a resale certificate indicating that they intend to put an item back on the market, and therefore do not have to pay taxes. The attorney general took the position that art dealers who display purchased art in their homes owe sales or use taxes, Ms. McEvoy said. While she disagreed, Ms. McEvoy said her client “wanted to do the right thing,” so she settled with the state.

“Our understanding is that the A.G. is conducting a broad investigation into the use of resale certificates,” Ms. McEvoy said.

In Mr. Rosen’s case, in addition to Mr. Hirst’s “Virgin Mother” sculpture, the art covered by the settlement includes Jean Michel Basquiat’s “Warrior,” for which Mr. Rosen paid $9.1 million in 2012; Andy Warhol’s “Howdy Doody,” which cost him $866,500 in 2011; Roy Lichtenstein’s “Sock,” which cost him $5.25 million in 2011; and Cy Twombly’s “Venere Franchetti,” which cost $1.8 million in 2011.

Between 2002 and 2015, the attorney general said, Mr. Rosen used a company he formed in 2002, 22nd Century Acquisitions, to buy artwork, and a second company, Lever House Artwork, to commission new art. The companies, in turn, claimed an exclusion from sales taxes because the art was for resale.

The settlement “relates to an uncertainty as to whether some of Mr. Rosen’s transactions were done as a private collector or as a dealer based on how artwork can be displayed for sale,” Roxanne Donovan, a spokeswoman for Mr. Rosen, said in an email.

“Mr. Rosen will continue to act as both an art dealer, buying and selling fine art, and as a private collector, as applicable,” she continued.

Mr. Rosen and his partner Michael Fuchs have acquired or developed a total of three dozen office buildings, hotels and apartment houses, mostly in New York.

The properties are often intertwined with Mr. Rosen’s collection of contemporary art, which he has said contains more than 800 works worth “well over $500 million.” In 2013, he opened a small gallery in the sales office for 530 Park Avenue, at 61st Street, which he had renovated, providing one-stop shopping for apartment buyers. His company also offered commercial tenants advice on designing and decorating their office spaces.

Mr. Rosen said in a 2014 interview that he was selling 30 to 40 artworks at any one time. Displaying the art, he said, increases its value.

But he also caused a flap among preservationists and restaurant fans in 2014 when he sought the removal of an artwork he did not own, a 19-by-20-foot theater curtain painted by Picasso that had hung in the Four Seasons restaurant at the Seagram Building since it opened in 1959.

Eventually both the curtain, known as “Le Tricorne,” and the Four Seasons were evicted from the building. The curtain, which is owned by the Landmark Conservancy, now hangs at the New-York Historical Society on the Upper West Side of Manhattan.

And in July, Four Seasons will close. The restaurant is likely to move to a new home three blocks to the south at 280 Park Avenue, an office building between 48th and 49th Streets.

As part of his settlement with the attorney general, Mr. Rosen agreed to pay the proper taxes on artworks not acquired for resale and to employ outside accountants to prepare and file tax returns for 22nd Century and Lever House Artwork.

Source: The NY Times