From the Now That's Rich department: The manager and assistant manager of Cartier's Fifth Avenue store in Manhattan were arrested yesterday and accused of allowing customers to purchase jewelry and other items without forking over New York state sales tax.
"They would say, 'Don't pay $825 in taxes on that bracelet. Give me the address of your grandmother in Iowa,' " said David Fishlow, spokesman for state Attorney General Robert Abrams.
An empty box or one filled with paper clips or a worthless trinket would then be sent to the out-of-state address, he said, and recorded as an interstate sale, which is tax exempt. The combined New York City and state tax is a hefty 8.25 percent.
"It makes a lot of difference," said Fishlow. "On a $100,000 ruby necklace, you're talking about $8,000 in taxes."
Cartier, along with the two employes named in the indictment, pleaded innocent yesterday. They were charged with bilking the state out of $250,000 in sales tax over a three-year period, according to Fishlow, who added that tax officials were interested only in purchases of $10,000 or more. On 90 percent of those purchases, no sales tax was paid.
The investigation by a Manhattan grand jury is continuing, Fishlow said, and will extend to other well-known merchants to the rich, including jewelers and furriers. The loss of revenue, he said, could well be "in the millions. Annually."
According to Fishlow, Cartier was aware of the ongoing investigation.
"This is not a shock," Cartier general counsel Neal Gordan said yesterday, after both the Fifth Avenue store manager, S. Howard Warnock, 41, and assistant manager, Thomas Foster, 53, were arrested. The two longtime employes are still on the Cartier payroll.
"We support and stand behind them," said Gordan.
The indictment against Cartier includes 255 counts of falsifying business records and 12 counts of offering a false instrument for filing. Warnock was charged with 156 felony counts and Foster with 124.
If convicted, the French company could be fined $10,000 on each count. The defendants could receive fines of up to $5,000 and four years in prison on each count.
"The investigation in New York goes beyond Cartier," Fishlow said. "Other luxury dealers are under investigation." He said the indictments followed a citywide probe into the sales tax problem. After several audits were completed, the matter was referred to the grand jury.
Tax officials posed as well-heeled Cartier customers to determine what was happening, according to news reports. Lists of high-spending customers -- including prominent Washingtonians -- have been obtained from several other Manhattan establishments currently under investigation.
Retailers said yesterday the practice of circumventing the sales tax is widespread, especially among dealers in high-priced items such as jewelry and furs, and it is usually the wealthier customer who will demand such service.
"We don't do it," said an employe of Manhattan's Tiffany jewelers yesterday. "We have avoided that for a long time. Do customers come in and ask if we do it? Yes. Some were dumbfounded when we wouldn't do it. We probably lost a few sales."
"It's very risky," a Washington Cartier salesperson familiar with the practice said yesterday. "It's not worth it."
How savvy was the posh jewelry store in hiding the lost revenue?
"They're weren't creative at all," said Fishlow. "They kept records showing they had sent empty boxes to phony addresses."
Hoping the Cartier caper will serve as a deterrent to other luxury stores, Attorney General Abrams said yesterday in a press conference: "It is both illegal and unfair that wealthy customers of establishments such as Cartier can avoid the payment of sales tax on 'big ticket' items such as jewelry, furs and other luxury goods. Such people will be prosecuted and sent to jail if it is warranted, no matter their elevated social and economic positions."
Fishlow said the state will attempt to recover unpaid sales tax from Cartier, whose customers, although technically liable, will not be prosecuted.
"In other cases," Fishlow said, "I wouldn't rule that out."