The Royalty Treatment

To get an idea of the pros and cons of artist resale royalties, let’s look at how they have fared in the U.K.

A self-portait by Chuch Close at Art Basel Miami Beach in 2008. (Photo by Joe Raedle/Getty Images)
A self-portrait by Chuck Close at Art Basel Miami Beach in 2008. (Photo by Joe Raedle/Getty Images)

“In general, I think resale royalties is a pretty good idea,” said painter Chuck Close, who with other artists and artists’ estates filed in 2011 a class-action lawsuit against Christie’s and Sotheby’s for failing to collect and distribute a 5 percent royalty payment for artwork sold on the secondary market, which was required by a 1977 California law. “I know some artists who were successful in the 1960s and ’70s and have since fallen on hard times and could really use the money.”

Mr. Close and the other litigants lost the lawsuit the following year when a U.S. District Court judge ruled the state law was in violation of the Commerce Clause of the U.S. Constitution. Recently, New York City Democratic Congressman Jerrold Nadler, along with U.S. Senators Tammy Baldwin (D-Wisc.) and Ed Markey (D-Mass.) introduced their own artist resale royalty bill into Congress, the ART (American Royalties Too) Act. The legislation proposes a 5 percent royalty on secondary market sales of at least $5,000 and a 7 percent royalty on such sales of at least $10,000, applicable only to sales at auction houses that sold more than $1 million in artwork during the previous year. The amount of the royalty would be capped at $35,000, paid to a “visual artists’ copyright collecting society”—most likely VAGA or the Artists’ Rights Society—that would distribute the money to the artists or their heirs, minus what the bill calls “reasonable administrative expenses.” Gallery and dealer sales are exempt from the resale royalty, as are private sales at auction houses, and the royalty would apply to the total sales price and not just to the profit that the seller had earned; auction house consignors would still be required to pay a royalty even if they lost money on the sale.

It is worth looking at the nations (most recently, in 2006, the U.K.) where artist resale royalties is the law of the land to see if the benefits are indeed high and the drawbacks actually dire.

“Sales have been as healthy as before the law came into effect,” said Glenn Scott-Wright, the director of London’s Victoria Miro Gallery. “Clients haven’t indicated that they were unwilling to buy because of the royalty. In fact, there hasn’t really been much discussion of the law.” British auctioneers have reported similar results. Pilar Ordovas, the former head of Christie’s contemporary art department in London and now a gallery owner, claimed that the auction house conducted a “study of comparative taxes in the United States, such as the New York City sales tax, which is pretty comparable to the artist resale royalty, which suggested that the impact would be pretty minimal.” Her own experience is that the “the law hasn’t really changed things. At most, it is a cost absorbed by the dealer.”

The U.K.’s resale royalty law came into existence in two phases. The first, in 2006, provided royalties to living artists, and the second, in 2012, extended the law to the families and heirs of deceased artists. The British resale royalties law, which employs European standards of payment, sets a minimum sale price above which the resale royalty comes into play at 1,000 euros (820 pounds or $1,380), diminishing by a sliding scale to one quarter of one percent for profits exceeding 500,000.01 euros. The British law set the single maximum payment for any one sale is at 12,500 euros. According to the London-based Design and Copyright Society, an artists’ licensing organization that has acted as the primary collecting agency for these royalties and takes a 15 percent commission (covering the cost of collection), approximately 3,360 artists have been paid royalties amounting to 34 million euros since 2006. Approximately three quarters of the resales were at auction houses.

In 2011, Jussi Pylkkänen, president of Christie’s Europe, called the artists’ resale rights “a matter of real concern. It will affect the modern art market, which is a key aspect of Christie’s activities in London.” Four years earlier, Anthony Browne, the executive director of the British Art Market Federation, claimed that the law “is expensive and complicated to administer, and it will shift buyers and sellers from the U.K., which has lost a considerable amount of global art market share in the past five years, to countries where there is no royalty to be paid,” such as the United States.

And yet, Sarah Percy-Davis, the chief executive of the London-based Association of Art & Antiques Dealers, which has long protested the introduction of artist resale royalties as creating a burden on association members, stated that while “damage is difficult to measure, [c]ertainly, at the upper end of the market, damage has been negligible, and no one has been put off from buying or selling.”

Even at the lower end of the market, damage appears to be more theoretical than actual. John Robertson, who until he retired recently ran a commercial art gallery in London for 43 years, said that “sorting out the administration of the law” involved a great deal of time if not money. “Most of my contemporary art transactions were at the level of 1,000 to 3,000 pounds,” he said. “Paying 4 percent on that amount wasn’t as much the problem as the time it would take to do everything the law requires,” especially since he handled 400 to 500 sales at this price range per year. Still, almost all of his sales in contemporary art were at the primary, rather than the secondary, market, and almost none of those pieces were ever resold, to his knowledge.

Evidence that artist resale royalties have benefited artists who are in need has been scant. A 2010 report on artists’ resale royalties, commissioned by the European Art Market Coalition, found that in continental Europe, 74 percent of all the royalties collected went to artists’ heirs, 20 percent to the collecting agencies and only 6 percent to living artists. Critics claim the practice has largely benefited the heirs of already successful artists like Pablo Picasso, Georges Braque and Henri Matisse. Another study, conducted by the Intellectual Property Institute of the University of Southern California School of Law, found that “there is no evidence that [artist resale royalties] has diverted business away from the U.K., where the size of the art market has grown as fast, if not faster, than the art market in jurisdictions where [artist resale royalties] is not currently payable.” However, the study also found that most payments to artists “are quite small and the median payment to artists based on auction house data is 256 pounds,” adding that 80 percent of all payments have been to a relatively small number of top artists.

When their work is no longer admired and after most artists die, interest and prices generally diminish rapidly, and auction houses like Christie’s and Sotheby’s won’t accept low rent consignments. Odds are, the principal beneficiaries of a U.S. artist resale royalties law will be established artists whose careers are thriving, more than those who have fallen on hard times. With a tax code that so already heavily favors the already well-to-do, are we ready to extend more largesse to a different class of wealthy, this time artists?

The Royalty Treatment