Every Old Scam is New Again

Michael Schvo's "Sheep Station." Photo by Inhabitat. Used under a CC BY-NC-ND 2.0 licence.
“Sheep Station.” Photo by Inhabitat. Used under a CC BY-NC-ND 2.0 licence.

When I was in law school, I took a class in state and local taxation from Professor Richard Pomp. Although I don’t spend much of my professional life thinking about state taxes, I clearly remember one of the stories he told us.

A fur store in Manhattan, he told us, would ship empty boxes (or boxes filled with rocks or magazines) to an empty lot in New Jersey for customers. Why? Because nonresident purchasers didn’t have to pay New York sales tax if the purchase was shipped out of state.[fn1]

The New York Times provides more detail on the scheme: the furrier in question, Ben Thylan Furs Corporation, would allow customers to take the furs home without paying sales tax (and, with an average fur price of $8,700, the evasion of an 8.25% sales tax saved customers an average of $717.75 per fur). It would then ship a box filled with something else (or with nothing) to create a false record to back the out-of-state purchase. And, in 1985, Ben Thylan was indicted. 

Around the same time, similar cases were brought against jewelers (including Bulgari, Cartier and Van Cleef & Arpels) for doing basically the same thing.

Almost 20 years later, New York indicted Dennis Kozlowski, the disgraced former CEO of Tyco International, for evading more than $1 million in sales taxes on various art purchases.[fn2]

And now, 14 years after Kozlowski’s indictment, it’s back! Last night, my Twitter feed let me know about another $1 million sales tax evasion.

Michael Schvo, a real estate developer in New York, has been indicted for allegedly, well, doing almost exactly the same thing Kozlowski, and various 1980s fur- and jewelery-buyers, did. According to news reports, Schvo is accused of buying art, jewelry, furniture, and even a Ferrari, and claiming that it would be shipped to entities he owned at addresses in the Cayman Islands or other foreign countries (or, once, Montana).

But, just like the furs and the jewelry, they weren’t: the ended up being shipped to his apartment or his office in Manhattan, or to his home in the Hamptons.

I was initially curious about why the sellers weren’t indicted, too, but the Daily News story hints at that. Shvo wasn’t indicted alone; an art shipper and an art mover[fn3] were indicted, too. It looks like Shvo figured out how to do this in a way that didn’t require complicity from sellers.

Of course, so far it’s only an indictment, and the allegations against Shvo are unproven. Still, it’s interesting that this kind of sales tax evasion (with art and jewelry, no less!) keeps coming back.

Also, if you’re interested in the kind of art Schvo allegedly evaded taxes on, here’s an interview with him talking about his interest in Surrealist sculpture.

[fn1] Technically, of course, an out-of-state purchaser is supposed to pay use tax on items they buy from other states if they don’t pay sales tax in that state, but the use tax is probably the most-evaded tax in the U.S.

[fn2] The New York Times points out that the Koxlowski case was a departure; usually, it was sellers, not buyers, who were indicted. On the other hand, usually the buyer only evaded a few hundred dollars of taxes at most, while sellers could aid in millions of dollars of evasion.

[fn3] Which, clearly, are existing jobs.

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