Rauschenberg's Angst: The California Resale Royalty Law and How It Affects Dealers and Collectors

by Nicholas A. Carlin (Art West 1995)

"I've been working my tail off just for you to make that profit", Robert Rauschenberg said angrily to Robert Scull. Scull, a wealthy collector, had just sold Rauschenberg's painting "Thaw" at auction at Sotheby Parke Bernet for $85,000, and Scull had declined to give Rauschenberg any share of the proceeds. This was a painting that Scull had bought some 15 years earlier from Rauschenberg, at that time a struggling young artist, for only $900. 

Upset at the perceived injustice, Rauschenberg and others began agitating for a law that would give artists a royalty upon the resale of their work, much as musicians, writers and performers are entitled to royalties on the fruits of their labors. Such a law had already existed since 1920 in France (known as the droit de suite or "follow up right"), and several other European countries. 

Rauschenberg's efforts eventually resulted in the California Resale Royalty Act. In 1977, California became the first - and still the only - state to enact a resale royalty law. The California law generally provides that the artist is to be paid a 5% royalty of the gross selling price on every resale of his work when the selling price is $1,000 or more. As always, however, there are many loopholes.

Many - if not most - dealers and collectors are not aware of their rights and responsibilities under this law. Here are some of the key provisions: 

The law only applies to: 

  • sellers who reside in California or to sales that take place in California. (So you could always move to Reno);
  • works sold for a gross sales price of at least $1,000. (So if you want to be really cheap, you can save $49 by selling a work for $999 rather than selling it for $1,000 and paying a $50 royalty); and to 
  • works of "fine art", defined as original paintings, sculptures, drawings, and works of art in glass. (Whether or not it applies to collector Trolls and soap opera plates is still unclear.) 

The law does not apply to the resale of a work by an art dealer to a purchaser within 10 years of the initial sale of the work by the artist to an art dealer (not necessarily the same dealer) as long as all intervening sales were between art dealers. 

The 5% royalty is 5% of the gross resale price, not 5% of the appreciation. But the law does not apply if the resale price is less than the purchase price originally paid by the seller for the work; i.e., no profit, no royalty. 

It is the seller's responsibility to locate and pay the artist, whether he be in a cardboard box under the freeway or staying with Ivana. 

If the work is sold through an agent, such as a gallery, dealer, or broker, it becomes that agent's responsibility. 

If the artist cannot be located within 90 days after the resale, the 5% royalty must be paid to the California Arts Council (which will then try to find the artist). The address is: California Arts Council, 2411 Alhambra Blvd., Sacramento, CA 95816, Attn: Joe Alameda. .

What are the consequences of not paying the royalty? 

Well, first of all, there is that problem of your guilty conscience, which I should hope would be more than enough disincentive. For those of you without a sturdy moral compass, however, the statute provides that if the artist discovers that you have been holding out, the artist can sue and, if she wins, you will have to pay all of her attorneys fees and court costs. At a litigator's standard hourly rate, this could wind up costing you a whole lot more that paying the royalty in the first place. It also makes it easy for an artist to find a lawyer who will take the case on spec. 

Here are some suggestions on how to make compliance with the resale royalty law as painless as possible: 

Whenever you buy a work, open a file for it in some way, whether it be a ledger entry, index card or on your computer. Include the date of purchase, the amount, the seller's name, and the name and address of the artist. (If you are a dealer buying from a dealer, you will also need to obtain a complete provenance in order to determine whether you fall within the 10 year rule.) 

Contact the artist and ask to be kept informed of any changes of address. Be open about the reason; if artists know that you want their address so that you can pay them a royalty when you resell their work, they will be happy to give it to you.

Whenever you decide to resell a work, figure out whether or not you have to pay the royalty, using the rules described above. 

If you are required to pay a royalty, locate the artist. If you cannot locate her within 90 days, pay the royalty to the Arts Council. 

Whenever you resell a work, make an entry in your file indicating the buyer, the date of sale, the amount, and whether or not you paid the artist a royalty. If you did, indicate who you paid it to and when; if you didn't, indicate why not. 

This is not an exhaustive treatment of the resale royalty law, so if you have any doubts it is safest to consult your attorney. But following the above steps should help to keep you out of legal trouble and, more importantly, make you even more beloved of the artists you collect and deal with. 

Copyright 1994 Nicholas A. Carlin. All rights reserved.