The New York attorney general's office, continuing its crackdown on alleged tax abuses in the art world, said Tuesday that New York dealer Larry Gagosian agreed to pay $4.3 million in unpaid sales taxes, including interest and penalties, for art he sold through his gallery.
Investigators found that New York-based Gagosian Gallery used its Beverly Hills, Calif., affiliate, Pre-War Art Inc., to sell and ship nearly $40 million worth of modern and contemporary art between 2005 and 2015 to collectors in New York without charging the necessary state and local sales tax, according to the attorney general's office.
Pre-War's accounting records should be considered the same as those of the New York gallery, investigators said, since they share an owner.
The probe also found that the gallery should have charged sales tax on additional artworks it shipped to buyers living out of state because it used New York-based art shippers to handle the transfer.
The attorney general said firms that specialize in shipping blue-chip art don't necessarily charge uniform rates or maintain routine shipping schedule s like FedEx FDX -0.67 % and other so-called common carriers do. Thus, art shippers should be considered agents of galleries, and subject to local tax laws.
The interpretation is likely to cause a stir among New York galleries that have long used local art shippers to crate and send out their sold pieces to faraway collectors—without charging state sales tax.
"There is one set of tax rules for all, and that includes art dealers and collectors," Attorney General Eric Schneiderman said in a prepared statement.
As part of the settlement deal, the gallery also agreed to set up its own company, GG Shipping, so it can make arrangements with outside shipping firms, and offer more detailed documentation on whatever it sells in New York. It also agreed to let authorities scrutinize Pre-War's accounts for the next six years to ensure it complies with the settlement.
The gallery declined to comment on the matter, but said in a statement that "[We] accept and will fully comply with the terms of the settlement to bring closure to this matter." The investigation found no evidence of criminal wrongdoing.
The settlement comes at a time when New York authorities are taking a harder look at funds that funnel through the state in the form of art sales.
Two months ago, Mr. Schneiderman's office announced settlements of $7 million and $210,000 in cases where people working as art dealers bought art for resale, but displayed them in their homes or businesses without paying the required compensating-use tax.
This isn't Mr. Gagosian's first tangle with tax authorities. In 2003, the U.S. government sued the dealer and several business partners for $26.5 million. The case settled for $9.1 million.
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