Sometimes Gifts Can Come in Empty Boxes

By Sydney H. Schanberg

New York Newsday, November 7, 1986

Shaving a little bit here and there on taxes is without question a basic American pastime practiced by all religions, races and creeds. But there is an attitudinal difference, when the revenuers close in, between everyday schnook and the high roller.

When the average guy gets caught cheating on taxes, he slumps in resignation and cries out to the gods: Why me, I’m just nickel-and-dime stuff, why not the big guys?

But when the big guys get caught, they speak only through their lawyers, who blame it all on the ruffians who misled their unwitting clients into sin.

We were presented with affirmations of this curious rite this week when Leona Helmsley, wife and business partner of billionaire Harry Helmsley, was revealed as having neglected to pay local sales taxes on what appears to be roughly half a million dollars worth of jewelry purchased at Van Cleef & Arpels. The sales tax she should have paid is estimated at $38,000 — which would seem to be a mere bagatelle to a billionaire.

Indeed, that’s exactly what he lawyer said: “She and her husband have just given $33 million for a new wing to a hospital. Why would she try to evade $38,000 in sales taxes?” I don’t know, maybe because she’d rather give it to hospitals than to the city and state, where, as we all know, it will be wasted on the unappreciative needy.

Leona, who advertises herself as “the queen” of the Helmsley hotel empire, is of course not alone in her forgetfulness. Her being singled out this week is only an unlucky legal happenstance arising from the government’s cruel decision to try to recover some of the hundreds of millions of tax dollars lost on amnesiac purchases of “big-ticket” items such as furs and jewels.

Van Cleef & Arpels is only the latest of the exclusive vendors to the rich who have been snared on this sweep; such as Cartier and Bulgari fell earlier. But no customer’s name had passed anyone’s lips until now. It was Leona’s misfortune to get caught in the middle of an internal squabble at Van Cleef & Arpels.

It seems that Claude Arpels, the company president, and his controller, Al Schwartz, who were indicted last December for defrauding the state on a routine basis, have contended that they knew nothing of the heinous tax evasion scheme. It was hatched, they say, entirely by a former salesman who did it to cater to the “whims of his demanding regular customers” — one of whom was Leona Helmsley.

The former salesman, fired last year, is now suing Van Cleef & Arpels for wrongful dismissal, saying that he was discharged through no misconduct of his own but as the result of a disagreement between the Fifth Avenue store and Mrs. Helmsley.

As you can see, there’s a lot of bad blood here, and it’s probably not fair that Leona got tangled up in it.

But getting back to the scam, it worked in quite a simple fashion. The customer, say Leona, would buy a $375,000 diamond necklace (as Leona did in September, 1980) and take it home with her. But an empty box would be shipped to an out-of-state address — In Leona’s case, an address in Florida — in order to bypass New York’s sales taxes.

Leona’s lawyer, Steven Hayes, says that his client “fully believed that the price she was paying for the jewelry was inclusive of sales tax — she had no idea at all that they were not paying any taxes that were due.”

That’s not what the store owners say; their story is that Leona would negotiate a basic price on the jewelry with Claude Arpels, who would then pass her on to the salesman, Daniel Issert, who was to work out the payment details, including the sales tax.

Issert says it was Leona, not he, who initiated the tax bypass, contending in court papers: “She was the one who said, ‘I don’t have to pay sales tax since I have a residence in Connecticut.’” She does have a residence in Connecticut — a 26-room estate in Greenwich. That raises another mystery — why, then, send the empty jewelry boxes to Florida (where Leona has still another address, a Palm Beach penthouse overlooking Lake Worth)? Maybe it was because Connecticut, like a lot of states, charges a “use tax” on items purchased elsewhere; Connecticut’s use tax is 6 percent of the item’s price, not too much less than New York’s 8.25 percent sales tax.

It almost doesn’t matter whom you believe in this thicket of finger-pointing. The only thing one need remember is that a lot of empty boxes were being posted from Van Cleef & Arpels to faraway places. Not to mention the identical mailing rituals performed  at other bauble emporiums and fur salons. A similar tax swindle, without the empty-box trick, is said to be common custom at the city’s prestige art galleries.

Mayor Edward Koch, whose administration has pressed this tax probe, has said in the past that the “real felons” are the store owners and managers who have encouraged the evasion scheme. The customers, he says, are merely victims of “moral entrapment.”

That’s why it’s so all-fired undeserved that Leona’s is the only name that has surfaced in the court papers and made the headlines. This is a tax scam so clearly created for the rich and famous that you can be sure she is but one of thousands who have mastered the art of the empty box.

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