A.G. Schneiderman Announces $7 Million Settlement With Art Collector Aby J. Rosen For Failing To Pay Sales And Use Taxes On Art Acquisitions

Rosen Owed Millions In Taxes On Over 200 Works Of Art Purchased Over A Period Of More Than 10 Years

NEW YORK--Attorney General Eric T. Schneiderman announced today a settlement with Aby J. Rosen, a major contemporary art collector, for failing to pay millions in sales and use taxes on art acquisitions made by his companies. Rosen will pay $7 million following the Attorney General’s investigation into the use of resale certificates. Mr. Rosen’s collection has included works by Basquiat, Calder, Currin, Hirst, Warhol and others. Rosen is a major figure in both the contemporary art and New York real estate scenes.

The Attorney General alleges that beginning in 2002, Mr. Rosen bought or commissioned more than $80 million worth of contemporary art, but did not pay applicable State and City sales and use taxes on the purchases.  Between 2002 and 2015, Mr. Rosen used two companies, known as 22nd Century Acquisitions LLC and Lever House Artwork LLC, to purchase and, in Lever House Artwork’s case, commission artwork, claiming an exclusion from sales tax on the basis that the purchases and commissions were for resale. 

Mr. Rosen used the artwork for personal enjoyment and the enhancement of his real estate business brand, displaying it throughout his residences in New York State and throughout his real estate business offices and properties.

“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 per sale,” said Attorney General Schneiderman. “When art collectors don’t pay their fair share, law abiding New Yorkers should not be stuck footing the bill.”

New York law requires sellers of goods, or vendors, to charge sales tax on sales of goods.  Purchases that a vendor makes exclusively for resale are excluded from sales tax, if the vendor purchases retail property with the intent exclusively to resell that property.  If, after purchase, a vendor uses the item initially bought exclusively for resale, then the vendor must pay a compensating use tax at the same aggregate rate as the sales tax.  Use tax applies when, among other circumstances, a vendor diverts inventory for use that was initially intended exclusively for resale and purchased with resale certificates.

In 2002, Mr. Rosen formed 22nd Century Acquisitions LLC in order to engage in the purchase and sale of contemporary art.  22nd Century filled out and issued resale certificates in connection with its artwork purchases.  Use of these resale certificates enabled 22nd Century to avoid paying New York State and local sales tax on the items it purchased.  Mr. Rosen signed all resale certificates on behalf of 22nd Century. 

Between 2002 and 2015, 22nd Century purchased more than 200 works of art, furniture, jewelry, and other decorative items, for an aggregate purchase price exceeding $80 million, claiming the resale exclusion.  With a single exception, 22nd Century paid no sales or use tax on the items it purchased, and filed sales and use tax returns signed by Mr. Rosen from 2002 through 2015 in which it declared that no sales or use tax was due.

Between 2002 and the present, Mr. Rosen displayed the 22nd Century purchases throughout his personal residence in New York City and his residences elsewhere in New York State.  Also, Mr. Rosen displayed the 22nd Century Purchases throughout the offices of his real estate company, in the office of a family member and in the public areas of real estate properties, including hotels and restaurants in New York State, owned or administered by affiliates of his real estate company.

In 2004, Mr. Rosen and others formed a Delaware limited liability company named Lever House Artwork LLC, which purchases and commissions works of art from contemporary living artists, holds such artwork for long-term appreciation, makes or arranges for periodic display of the artwork in the ground floor public areas of Lever House (a building in New York City owned by Mr. Rosen’s real estate business) and in public areas of other buildings, including those owned by Mr. Rosen’s real estate business.  From 2006 through 2015, Lever House Artwork paid no sales or use tax on the works of art it purchased or commissioned, even though it intended, among other purposes, enhancement of the identity and brand of Mr. Rosen’s real estate business. 

Mr. Rosen’s companies should not have used resale certificates. Instead, they should have paid sales or use tax at the time they purchased artwork to the extent they did not intend exclusively to resell the art.  To the extent Mr. Rosen’s companies initially intended exclusively to resell the art, they should have paid use tax when, following the purchases, they diverted the artwork to taxable uses. 

In addition to the payment, Mr. Rosen has agreed to a code of conduct including the following:

  • Mr. Rosen and his companies will not use a resale certificate when purchasing artwork, unless the artwork is purchased for the exclusive purpose of resale;
  • Mr. Rosen and his companies will timely report and pay New York state and local government compensating use taxes if artwork is purchased for resale but is subsequently diverted to a taxable use, including displaying such artwork within New York State, for personal or non-resale business use: (i) in any residence or office of Mr. Rosen’s; (ii) in any residence or office of any of his immediate family; or (iii) in any property owned, managed or sold by Mr. Rosen’s real estate company or any of its affiliates; and
  • 22nd Century and Lever House Artwork will employ (i) duly accredited outside accounting professionals to prepare and file all tax returns; and (ii) duly accredited accounting professionals to prepare all accounting and financial books and records.

Attorney General Schneiderman expresses his thanks to the New York State Department of Taxation and Finance for its important assistance in bringing this investigation to resolution. The Attorney General’s investigation of Mr. Rosen was conducted by Thomas Teige Carroll and Scott J. Spiegelman, respectively Chief and Deputy Chief of the Taxpayer Protection Bureau, with assistance from AAG Sujata Tanikella and Legal Support Analyst Bianca LaVeglia, as well as from former AAG Lisa White and former LSA Rupinder Garcha

The Taxpayer Protection Bureau, which enforces the New York State False Claims Act including tax claims made thereunder, is a unit of the Criminal Division, which is overseen by Executive Deputy Attorney General Kelly Donovan.

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