TAX REAUTHORIZATION GLITCH HAS UNITENDED CONSEQUENCES ON SONGWRITERS
Failure to Act Could Devalue America’s Song Catalogues
During the process of Congress considering tax reauthorization issues in 2010 an important consideration for American songwriters and music composers was overlooked.
The music industry has been devastated by the impact of Internet music piracy. The songwriters and composers who create the music that marks the moments of our lives have been hit the hardest. Over the past decade their ranks have dwindled by as much as 90%.
The digital delivery of music over the past ten years has changed the way music royalties are paid. Today’s royalty statements contain volumes of micro-penny payments, often as low as .01 cents for digital uses. Those changes in the royalty structure led Congress, in 2005, to adopt a tax simplification, songwriter/composer jobs measure that also stimulated the value of America’s great song catalogues.
The change allowed American music publishers and self-published songwriters to elect to use a new amortization schedule of 20% per year over a flat five years. Previously music publishers utilized either a 6.6% annual straight-line 15-yr amortization or the income-forecast method which resulted in 90% or more amortized over 2-5 years.
The Income Forecast method led to quicker amortization and required projecting every song’s income for the tax year, then doing an arrearage correction. Only a few years ago, prior to the widespread digital distribution of music, utilizing the Income Forecast Method was relatively simple when most royalties simply came from record sales and airplay.
Royalty payments in fractional pennies from a wide variety of digital uses, creates a practical tax preparation nightmare. It is impossible to project hundreds or thousands of minute payments and preparing such a tax return often costs more than the royalties earned. The 2005 change eliminated those projections.
There are frightening unintended consequence of this tax option expiring at the end of 2010 including the impact it will have on the business appeal of acquiring song catalogues, thereby impacting the actual sales value of American song catalogues. Investing in music royalties is already a risky decision in the illegal-download era. Quicker tax amortization makes that decision more appealing.
Reauthorization of this measure would also serve as an incentive for songwriters to get market opportunities through signing a music publishing Songwriter Deal. Songwriter-music publisher agreements are often based, in part, on accompanying song catalogue transactions. Such deals help publishers recoup their investment in songwriters through the income the song catalogue generates.
The Songwriters Tax Simplification Reauthorization Act will help create jobs and maintain the value of America’s song catalogues.