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Off The Record: Tax Breaks

Music & Recording Industry News By Dan Daley
Published February 2018

Tax breaks offer some hope for our ailing industry.

Appropriately for a highly political time, music production is looking increasingly to political remedies for help in a disrupted business landscape. Effective this January, Georgia’s Musical Investment Act creates a new tax incentive for music production in Georgia, providing for a state income tax credit equal to 15 percent of a music-production company’s qualified production expenditures in the state. For expenses incurred in Georgia’s least developed counties, there is an extra tax credit of five percent, bringing the maximum credit up to 20 percent.

Off The Record 0218 - pen writing out a cheque.New York State developed similar legislation. The Empire State Music Production Tax Credit, a four-year-long legislative project, proposed a tax credit to companies and individuals who produce and record music in the state, as well as a 35-to-20-percent credit on expenses related to music production done there (as with the Georgia law, the higher credit was reserved for more remote counties). However, the legislation was vetoed by the governor, who cited lost tax revenues as the reason.

The Georgia legislation is broad, extending the tax credits to touring and theatrical performances that originate in the state, but it does also encompass music recordings. It comes with very specific rules, such as spending thresholds; recordings that are part of a larger production, such as a film or television show, need to spend $250,000 during a taxable year, while “any other kind of recorded musical performance,” the legislation ambiguously states, needs to spend at least $100,000. That’s not an unreasonable sum for major-artist projects, and the Atlanta area alone, which has nurtured artists from TI and Ludacris to John Mayer and the Black Crowes, has no shortage of those.

As with any business, recording studios are subject to a range of state and local regulations, but these new legislative initiatives extend bureaucracy much deeper into the creative processes. For instance, the Georgia legislation has a few governing bodies. Production companies must apply for certification of musical productions with the Georgia Department of Economic Development. And after expenditures are incurred in association with a certified project, the expenses must be claimed on the production company’s Georgia income tax return, which will be turned into credits with the pre-approval of the Georgia Department of Revenue. The entire programme is capped annually, at $5 million for 2018, $10 million for 2019, and $15 million thereafter until the credit is retired in 2023. Studios and their managers will almost certainly be asked for more detailed documentation of what transpired at sessions that will be claiming a tax credit.

A New York State Of Mind

Similar legislation in New York seems to have been sunk by its own ambitiousness. The credit cap was topped at $25 million for the first year, five times the Georgia law’s first-year values. The fact that the Recording Academy announced shortly thereafter that it was bringing the Grammy Awards back to NYC for the first time since 2003 wasn’t enough to change the governor’s mind.

That doesn’t change the fact that there was a substantial case to be made for the proposed law. New York Is Music, a coalition of 200-plus music-related organisations that had been pushing for the legislation for four years, analysed over 1400 studio sessions covering top-selling albums made between 1999 and 2014 and found that the state’s share of such projects had fallen by almost half. An assessment by Local 802 of the national musician’s union buttressed that account, reporting that their work has fallen around 30 percent in the past decade.

But that wasn’t enough to overcome competing interests, such as advocates for affordable housing, who opposed the scheme on the grounds that it diverts resources from their agenda. And that’s where music runs into the larger exigencies of the world: just as it now has to compete with a huge raft of other amusements that didn’t exist before, it also has to deal with a new hierarchy of social and economic issues. The massive assortment of interests lobbying for financial support now means that as noisy as music can be, it’s harder than ever for its advocates to be heard.

Tax credits for media industries seem to work. NYC saw a 40-percent increase in film production and a 13-percent bump in television work in 2016, as a result of tax incentives. Georgia, which has become home to the Walking Dead franchise, is now the number-one filming location in the world, according to FilmLA, from which the state took in an estimated $9.5 billion in economic impact in fiscal 2017. And the idea to apply these to music is gaining traction. In August, Louisiana followed Georgia’s lead, with a few twists, and implemented the Louisiana Music Industry Investment Act. It provides similar tax credit incentives but instead of apportioning them by location, as the Georgia law does, it offers them to state residents who spend at least $10,000 and out-of-state residents who spend at least $25,000 on audio productions in the state.

The larger question, though, is how well will these types of schemes work for music, and how equitably can their benefits be distributed? Justin Kalifowitz, the co-founder of the New York Is Music coalition, told Billboard that “more than 100,000 New Yorkers who work in music will benefit from this important credit.” Georgia’s documentation similarly cites “thousands”. But can legislation staunch the loss of commercial studios in New York City or elsewhere? Providing a tax break on money that doesn’t get spent in the first place isn’t going to save an industry. And those best positioned to take advantage of tax schemes like these are also the same ones who will quickly find the advantages in Donald Trump & Co’s new tax code changes; ie. the ones with sharp accountants to exploit complex bureaucratic and regulatory environments. That rarely describes denizens of music production.

Any programmes aimed at supporting the economics of music production should be welcomed, if only because of the needed attention it brings to a process that means so much to so many but which is seen and experienced by so relatively few. It is a different world out there, and it’s going to take different strategies to find the best ways through it.