On November 13, 2018, New York State Attorney General Barbara D. Underwood announced a $10.75 million settlement with offshore art purchaser Porsal Equities Ltd. for tax fraud in connection with over $50 million of artwork and other goods purchased in New York.
“Wealthy art collectors are not above the law,” Underwood said in a press release. “Just like any other consumers buying items for personal use, art collectors must pay sales and use tax when making a purchase. They cannot skirt the rules and make law-abiding New York taxpayers foot the bill.”
From 2010 through 2015, Porsal Equities Ltd., a company based in the British Virgin Islands, certified that it was exempt from paying sales tax on the basis that the art was purchased for resale. In reality, Porsal Equities purchased the artwork for personal use, including display in New York City apartments belonging to the company’s sole director.
Porsal Equities also failed to pay use tax on artwork purchased outside New York and shipped into New York for display at the same apartments.
New York state law requires sellers of goods to charge sales tax on sales of goods. A purchaser may claim an exemption when it is also a seller that is purchasing retail property exclusively for resale. In such cases, the purchaser may submit a resale certificate to certify its intent to purchase for resale. If, after purchase, the purchaser ends up using the goods it initially bought exclusively for resale, then it must pay a compensating use tax at the same aggregate rate as the sales tax. Use tax may also be due where state sales tax was not collected at the time of purchase because property was delivered outside the state but the property was subsequently used within the state.
The attorney general’s investigation uncovered that Porsal Equities was repeatedly put on notice that its purchases did not qualify for the resale exemption, including by representatives from at least two of the art institutions who inquired about the nature and intent of its purchases. Nevertheless, Porsal Equities failed to make basic inquiries regarding its tax obligations and continued to improperly claim the resale exemption for its purchases.
Porsal Equities also persisted in failing to pay use tax on artwork displayed in New York, despite its director’s receiving a letter from a tax authority specifically explaining use tax obligations associated with the display of artwork within New York.
In the settlement agreement, Porsal Equities admitted that its conduct violated the New York False Claims Act and Executive Law § 63(12) and agreed to pay $10.75 million in taxes, penalties, and damages under the New York False Claims Act. Additionally, the company agreed not to claim the resale exemption on purchases of artwork and other goods for personal use, including those for display on personal property. Porsal Equities also agreed to report and file use tax returns for any artwork used in the state, including any artwork displayed on personal property, for which sales tax was not otherwise charged.
Originally published in the January 2019 issue of Maine Antique Digest. © 2019 Maine Antique Digest