New York Congressman Jerrold Nadler introduced federal legislation in December that would require select auction houses to pay a royalty on paintings sold in excess of $10,000 that were executed by living artists. The bill, HR 3688, is titled “Equity for Visual Artists Act of 2011” (EVAA). Deceased artists that have a copyright protected estate would also be covered by the legislation.

Nadler’s proposed legislation somewhat mirrors an existing bill in California, the 1977 California Resale Royalties Act (CRRA), that grants artists or their estates five percent of the proceeds from resale of their works. The fee applies only if the sale is made in California or if the seller is a resident of California. CRRA applies to original paintings, drawings, sculpture or glasswork by living artists or those who have been dead for fewer than 20 years.

The legislation introduced by Nadler requires that auction houses selling more than $25 million of “art” annually to pay a royalty of seven percent of the final price achieved to a “visual artist’s collecting society” (VACS) that would be established to monitor sales, collect and distribute monies. Of the royalties that VACS would collect, it would be allowed to retain up to 18 percent of those monies for administrative costs. Fifty percent of the remaining monies would be paid to the “artist or his or her successor as the copyright owner.” The remaining portion of the “net royalty” would be deposited into an escrow account established by VACS “for the purpose of funding purchases by nonprofit art museums in the United States of works of visual art authored by living artists domiciled in the United States.”

The “royalty” would most likely be incorporated into the buyer’s premium. At one major New York City auction house, the seven percent royalty on an EVAA work would effectively raise the buyer’s premium to 32 percent on items sold up to and including $50,000. At that same auction house, a $1 million sale today is subjected to a 20.25 percent buyer’s premium. Should the legislation pass, a sale price of $1 million for an EVAA work will result in a buyer’s premium of 28.6 percent. The auction house would be responsible for collecting and paying said royalties to VACS.

Fine art auctioneer Gene Shannon, Shannon’s Fine Art Auctioneers, Milford, Conn., commented that he is in favor of resale royalties for living artists, within reason. Shannon, who is expanding more and more into the contemporary art market, believes that Nadler’s proposed royalty of “seven percent might be a bit heavy. If they keep it around three percent, I think it will fly, but seven percent starts to become real money,” he said.

The legislation in its current form does not include private sales of EVAA art that are made by art galleries and antiques dealers, as well as smaller auction houses or any online-only auction platforms, such as eBay.

Critics have taken a position that to not include all EVAA art sales would be unfair to artists, whom the bill is supposedly being enacted to benefit. “You can count the people this will involve on one hand,” said Shannon of the auction houses that will qualify to collect the royalties.

Bloggers around the Internet contend that Nadler’s HR 3688 bill is out of kilter by intentionally exempting powerful forces in the private art market and providing them a foot up on their competition †the major public auction houses, such as Christie’s and Sotheby’s.

Coming off a good year, Shannon’s sold approximately 400 paintings during the firm’s twice annual fine art auctions, grossing just over $7 million, leaving the auction house far short of the requirement to collect the royalties. “It leaves a lot of highly respected auction houses out of the loop; that is an inequity right there,” said Shannon.

Enacted or not, Shannon does not believe that it will hurt the art market even though the costs will be passed along to the client. “I don’t think anything is going to rupture the art market,” he said.

California’s CRRA is currently being tested as popular contemporary photorealist artist Chuck Close and an unknown number of other artists are embroiled in a class-action legal case against Sotheby’s, Christie’s and eBay. The artists allege that the auctioneers “willfully violated” CCRA, ignoring the requirement that royalties be paid to them stemming from the sales of their works. The suit was filed on behalf of Close, Los Angeles artist Laddie John Dill and the estate of late sculptor Robert Graham. The artists seek unspecified royalties and damages, which, by some estimates, could reach a level of hundreds of thousands of dollars.

California’s existing law and Nadler’s bill are in some ways similar to Europe’s “droit du suite” policies that compensate living and recently deceased artists when works they executed earlier in their careers are resold. Droit de suite has not been entirely enthusiastically received in France, Europe and the United Kingdom, where there is a current push to reformulate the regulations.

Nadler is now in his 11th term and represents the Eighth District of New York. According to the congressional monitoring website OpenCongress.org, Nadler, throughout his 11 terms in office, has sponsored 25 bills, not one of which has passed into law. He has co-sponsored an additional 208 bills, of which three have made it into law.

Requests for comment from Sotheby’s, Heritage, Christie’s and Bonhams were all declined.