The New York State Supreme Court, Appellate Division, affirmed a New York trial court decision denying a taxpayer’s motion to dismiss a False Claims Act suit brought against the taxpayer in relation to its sales of artwork to an alleged art collector under a resale exemption. According to the complaint, an employee of the taxpayer advised an individual purchaser of artwork to submit a resale certificate in order to avoid paying New York sales tax on his purchase of artwork, despite knowing that the purchaser’s occupation was as a shipping executive and that he had no plans to sell the artwork. The taxpayer’s employee allegedly provided the purchaser with the resale certificate and partially completed the certificate on his behalf. Over the course of five years, the purchaser bought artwork totaling $27 million from the taxpayer without paying New York sales tax, based on the resale certificates. The Appellate Division held that the alleged facts, if proven, would demonstrate that the taxpayer had actual knowledge that the purchaser’s purported exempt status was false and the taxpayer therefore violated its obligation to collect sales tax owed on the purchases. The Appellate Division further found that the facts alleged in the complaint permitted the inference that facilitation of knowingly false resale certificates by the taxpayer’s employees fell within the scope of their employment and was committed in furtherance of the taxpayer’s commission-based business. As a result, the Appellate Division, in a unanimous decision, upheld the trial court’s denial of the taxpayer’s motion to dismiss the complaint for failure to state a cause of action.

N.Y. v. Sotheby’s Inc., Case No. 2021-03657 (N.Y. App. Div. Apr. 14, 2022).