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Music Business News, February 13, 2018

Analysts indicated that tax changes will significantly affect music publishers. Also, major label executives criticized the Recording Academy for lack of female representation. And Google changed its rules to curb deceptive ticket sellers.


Music Publishers Affected by Tax Law Changes


The new tax bill signed into law on December 22, 2017 will have significant effects on music publishers, according to a Hypebot analysis by Magda Szabo, CPA, JD, LL.M., Tax Partner at Janover LLC and Steven White, CPA, Principal at Janover LLC.


Called the 2017 Tax Cuts and Jobs Act, the bill appears on the surface to benefit publishers thanks to the passthrough income deduction and the deduction for outbound (offshore) licensing.


While Congress sought to reduce the effective rate for passthrough business with a “passthrough income deduction” of 20-percent for partnerships, sole proprietorships and “S” corporations, the law is so complicated and “restrictive” that many who are supposed to benefit may not even be able to claim their benefits.


The Hypebot post simplified the deduction by explaining it is the lesser of “combined qualified business income” or “taxable income less capital gains.” The net lower number is taken at 20 percent for the “passthrough income” or “qualified business income” deduction.


When looking closer at the rules, “qualified business income” is the lesser of the “allocable share operating income less operating expenses” or “the greater of the allocable share 50-percent of W-2 wages paid” … or “the allocable share of 25-percent of W-2 wages plus 2.5-percent of the acquisition cost of all ‘qualified property.’” The “qualified property” adjustment was meant to bring benefits to real estate businesses and is limited to “tangible property rather than intellectual property. Thus, copyrights for music, while technically “property” do not qualify.


The deduction for services-based businesses will likely be limited in the following fields: performing arts; health; law; accounting; actuarial science; consulting; athletics; financial; brokerage and many investment services; any trade or business where the main asset is the reputation or specialized skill of an individual or employee.


Performing musicians are not eligible for a deduction if their passthrough taxable income is above a specific threshold, but their managers are eligible. Music publishing business should also qualify for the deduction if their businesses are structured in such a way that their taxable income is above the threshold.


Szabo and White recommend that many sole proprietors and artists should consider restructuring their businesses in order to help them navigate the new tax laws. They are presenting at the AIMP-New York Chapter event, “Tax Planning Under the Tax Cuts and Jobs Act” on Thursday, February 15 at 6 p.m. Registration is free to AIMP members and $15 for non-members.


Major Label Executives Criticizing Recording Academy


A group of female music industry executives co-penned a letter to the organizer of the Grammys, the Recording Academy for being “woefully out of touch with today’s music, the music business, and even more significantly, society.”


According to Music Business Worldwide, the criticism is aimed at the Recording Academy’s failure to properly represent women, particularly at the 2018 Grammys. The letter was signed by Jody Gerson (CEO, Universal Music Publishing Group), Julie Greenwald (COO/Chairman of Atlantic Records), Sylvia Rhone (President of Epic Records), Julie Swidler (EVP and General Counsel for Sony Music), Michele Anthony (EVP, Universal Music Group) and Disiree Perez (COO, Roc Nation).


The letter also asked that the Academy’s board of directors put regulations in place that force the organization and the Grammy Awards to become more inclusive of women and transparent about its workings.


Grammy Awards criticism started prior to the 2018 ceremony when a report showed the Recording Academy had refused Album of the Year nominee Lorde an opportunity to perform her own song on the televised portion of the show, despite allowing male artists to do the same.


Criticism continued when Neil Portnow of the Recording Academy used a controversial phrase in an interview about women in the music industry; he asked female executives and musicians to “step up” to higher positions if they were displeased with their current positions: “It has to begin with … women who have the creativity in their hearts and souls, who want to be musicians, who want to be engineers, producers, and want to be part of the industry on the executive level … [They need] to step up because I think they would be welcome.”


Addressing that statement, the letter read, “Neil Portnow’s comments are not a reflection of being ‘inarticulate’ in a single interview. They are, unfortunately, emblematic of a much larger issue with the  [Recording Academy] organization as a whole on the broader set of inclusion issues across all demographics.”


After his comment received backlash, Portnow said the Recording Academy planned to launch a “task force” in order to look at how the Academy functions and “overcome the explicit barriers and unconscious biases that impede female advancement in the music community.”


The letter from Gerson, Greenwald, Rhone and others asked that the board enforce this task force and also take steps to “ensure a thorough review by this task force.”


A separate letter was co-signed by other senior executives blatantly calling for Portnow’s resignation, signed by John Legend’s manager Ty Stiklorius and Harrell Williams’ manager Caron Veazey, plus Warner/Chappell VP Katie Vinten, MAC Presents founder Marcie Allen and agents Cara Lewis, Natalia Nastaskin and Marsha Vlasic, among others.


The separate letter read: “The statement you made this week about women in music needing to ‘step up’ was spectacularly wrong and insulting and, at its core, oblivious to the vast body of work created by and with women … Your attempt to backpedal only emphasizes your refusal to recognize us and our achievements. Your most recent remarks do not constitute recognition of women’s achievements, but rather a call for men to take action to ‘welcome’ women. We do not await your welcome into the fraternity. We do not have to sing louder, jump higher or be nicer to prove ourselves … We step up every single day and have been doing so for a long time. The fact that you don’t realize this means it’s time for you to step down …Today we are stepping up and stepping in to demand your resignation.”


Google Changing Rules to Curb Deceptive Ticket Sellers


New AdWords guidelines will force ticket resellers to be more transparent, reported Billboard.


Venues, show operators and artists have expressed frustration for years due to deceptive search results that misdirect fans looking for concert tickets. Google said it has changed the way resellers can advertise within the Google ad platform.


New rules ban many currently-used deceptive practices and demand increased transparency from independent brokers and big resellers like StubHub and Viagogo.


The new rules went into effect on February 7, 2018 and will affect how ticket resellers and professional scalpers advertise on Google’s AdWords platform. Ticket brokers have to complete a certification program and consent to a list of requirements about how their tickets are sourced, priced and marketed. Only after they have successfully responded to questions and have been certified can these resellers boost search engine results through paid advertising and buying via AdWords.

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