New York Art Purchasers Rush To Pay Tax On Their Paintings

by Mike Godfrey, Tax-News.com, New York

07 March 2003

Following the indictment last year of former Tyco Chief Executive L. Dennis Kozlowski on charges of evading sales tax on purchases of pictures, which he denies, Sam Waksal, founder and former head of ImClone Systems, pleaded guilty on Monday to evading tax on $15m in art purchases.

Mr Waksal was pursued by federal prosecutors, whereas Mr Kozlowski was charged by Robert Morgenthau, Manhattan district attorney, whose office says that since then his office has collected $6m in unpaid taxes and penalties on art purchases "and we're going to collect a lot more" from buyers who became worried after Mr Kozlowski was indicted.

The authorities think that evasion of sales taxes has become commonplace, using ruses similar to those that are alleged to have taken place in the case of Mr Kozlowski, when the prosecutor says that empty boxes were shipped to Tyco's headquarters in Exeter, New Hampshire (Tyco is based in Bermuda, but operates out of Exeter) to make it seem as though the paintings, worth at least $13m, were being shipped there instead of Mr. Kozlowski's Fifth Avenue apartment in Manhattan in a bid to avoid the 8.25% in city and state tax.

Although prosecutors have so far concentrated on investigating high-profile purchasers of art, Mr Morgenthau said his staff were also examining whether dealers had acted improperly. Dealers would be at risk of prosecution if it could be shown that they knew a buyer's residence was not where a painting had been shipped. "It's a question of proof," Mr Morgenthau said.

The 82-year prosecutor says that 34 people have reached voluntary agreements with his office to pay the tax they had avoided including some well-known people. "You would recognise them," Mr Morgenthau said, but refused to identify the individuals or the paintings concerned.

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