You like to attend art openings-and not just for the wine and cheese. You appreciate art, but you also appreciate its investment value. You've wisely purchased works from artists on their way up, as well as some established "names." You've even advised your firm on its art acquisitions, and your partners and clients are impressed with your art savvy.
Over the years, you've upgraded both your personal and office collections, often selling works that have appreciated to acquire even greater pieces. And along the way, you've probably inadvertently stiffed an artist or two.
CALIFORNIA'S RESALE ROYALTY ACT
A little-known and much-misunderstood statute, the California Resale Royalty Act (Cal. Civil Code Â§ 986) requires that an artist be sent a royalty payment when his or her work is resold. The law has been on the books for 30 years, yet it is frequently honored in the breach.
The legal requirements are relatively straightforward: If you sell an artist's work and certain conditions are met, you must send the artist 5 percent of the sale price. If your sale is made through an auction house, gallery, dealer, broker, or similar agent, that agent must withhold and forward the 5 percent to the artist for you. If you can't find the artist within 90 days of the sale, you are required to send the 5 percent to the California Arts Council. The council will attempt to find the artist and, if unsuccessful after seven years, will deposit the money in California's Art in Public Buildings fund.
REQUIREMENTS FOR COVERAGE
There are four requirements for a royalty to be due:
The piece must be "fine art"-defined as "an original painting, sculpture, or drawing, or an original work of art in glass." Although no case has addressed whether this term includes photographs or limited-edition fine art prints such as etchings, engravings, lithographs, and woodblock prints, such works appear to be outside the statute's ambit.
The seller must live in California, or the sale must take place in California.
The sales price, or the value received in trade, must be at least $1,000-and the amount must be greater than what the seller originally paid for the piece.
The artist, at the time of resale, must either be a U.S. citizen, or have been a resident of California for at least two years.
RESALES AFTER THE ARTIST'S DEATH
Under the act, if the artist has died, the royalty must be paid to his or her heirs, legatees, or personal representative-unless the sale is made more than 20 years after the artist's death. In the case of a resale of a deceased artist's work, the requirement that the artist be a U.S. citizen or a two-year California resident at the time of the sale would likely be interpreted to mean at the time of the artist's death.
DOING THE RIGHT THING
If you realize that you owe royalties from some of your previous sales, simply send the royalty to the artist, along with a thank-you note for having created a wonderful work that graced your home or office, and which incidentally made you a tidy sum upon resale.
Starving artists like to hear these things. And, apparently, even the well-fed ones get sensitive over the idea of collectors making money off their work and not sharing a portion of that bounty. As Robert Rauschenberg once told a collector who had purchased one of his paintings for $900 and later resold it for $85,000: "I've been working my ass off just for you to make that profit!" (Sale of Fine Art: Artist's Right to a Royalty, Hearing on SB 313, 199596 Sess. (statement of Professor John Merryman).)
LIMITATIONS AND TAXES
Subsection (a)(3) of the act includes a somewhat open-ended "discovery of sale" provision that states: "an artist may bring an action for damages within three years after the date of sale or one year after the discovery of the sale, whichever is longer." The prevailing party is entitled to attorneys fees.
If capital gains taxes are due on the resale, the legally mandated 5 percent artist's royalty should be deductible from the sale price, as it is a cost of selling the asset-much as are the fees or commissions paid to a dealer or auction house as part of a sale.
Robert A. Baines, a retired Santa Clara Superior Court judge living in San Jose, is a full-time arbitrator and mediator with JAMS.