By Laura Kusisto and Kelly Crow 

Christie's Inc. will pay up to $16.7 million to settle Manhattan prosecutors' allegations that the world's largest auction house failed to collect New York state sales tax on private sales for a five-year period ending in 2017.

Manhattan prosecutors' allegations targeted a growing arm of Christie's retooled business model. In recent years, the global firm has gone to great lengths to convince collectors to buy and sell art discreetly through its private sales division -- particularly in battered market years when sellers might be spooked to funnel works to its live auctions and risk the works going unsold. The team staffed up on salespeople in London, Paris, Hong Kong and elsewhere to sell art privately but for several years didn't charge New York sales tax on works sold to New York residents, a Christie's official said.

From 2013 to 2017, Christie's global private sales team, based in London, conducted $189 million in sales that should have been taxed in New York, prosecutors said. Prosecutors said the state sales tax would have to be collected, if there were a "nexus" with New York, such as the art being intended to reside there.

Citing internal Christie's documents, prosecutors said Christie's employees and customers repeatedly questioned whether some private sales should be subject to New York's tax, as is artwork auctioned in Christie's Rockefeller Center sale room in New York.

Manhattan prosecutors said a senior Christie's tax adviser told the firm at the time that its London entity didn't need to register to collect New York state and local sales tax for any privately brokered art sales. The tax adviser no longer works for Christie's, prosecutors said.

Christie's entered into a deferred prosecution agreement to pay up to $16.7 million over two years to the Manhattan District Attorney's Office, which said it would forward the money to the state.

Today, private sales remain a sizable part of Christie's sales program; in the past two weeks, the company said it has sold items privately that range from $50,000 to $35 million.

Manhattan District Attorney Cyrus Vance said settlements like this one "put multinational companies across the world on notice that the privilege of doing business in Manhattan comes with the obligation to comply with our tax, business and criminal laws."

Mr. Vance said the agreement took into account Christie's cooperation with investigators.

"For the past several years Christie's has worked in cooperation with the Manhattan District Attorney's Office to resolve specific issues created as a result of incorrect tax advice Christie's received regarding the application of sales tax obligations for specific non-US affiliates," a spokeswoman for the auction house said. "The company has since reviewed its advice and internal processes to ensure compliance with relevant tax law. This settlement agreement brings the matter to full resolution."

Write to Laura Kusisto at laura.kusisto@wsj.com and Kelly Crow at kelly.crow@wsj.com

(END) Dow Jones Newswires

April 09, 2020 19:01 ET (23:01 GMT)

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