May 24, 2024

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Bob Dylan’s Catalog Sale Highlights a Tax Benefit for Songwriters

7 min read

The answer, my buddy, is blowin’ in the tax code.

The sale of Bob Dylan’s songwriting catalog to Universal Songs Publishing Group, introduced this 7 days, most likely signifies he is trading an ongoing money stream for a lump sum now. The selling price hasn’t been unveiled but is said to be concerning $300 million and $400 million.

Mr. Dylan’s sale is the latest and greatest of a spate of identical discounts this year that come with major tax rewards both of those for the songwriters advertising the legal rights and for the providers acquiring them, and those people incentives are encouraging transactions.

“Many of these offers are not tax-pushed, but some have a significant tax flavor,” suggests Alan Epstein, who chairs the leisure and media group at law firm Venable LLP’s Los Angeles office.

There are, for positive, essential nontax motives for artists to funds in when they may well have been hesitant prior to. Concert income has dropped sharply in the course of the pandemic and price ranges for tunes legal rights are rising, now at 10 to 20 occasions the once-a-year royalties.

Spokesmen for Mr. Dylan and Universal, which is managed by

Vivendi SA,

declined to remark.

For musicians, a essential gain is that they can offer self-designed is effective and owe cash-gains tax costs of 20{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3} on the sale. Which is alternatively of owing everyday tax prices of up to 37{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3} just about every yr on the royalty money they get from streaming, licensing and other makes use of of their works.

The lower money-gains fee isn’t available to painters, filmmakers or videogame builders, who shell out ordinary cash flow-tax premiums on profits as effectively as royalties.

The edge exists for the reason that in 2006, senators and congressmen heeded the get in touch with of the state-music industry and made a unique provision for songwriters. Then-

Sen. Orrin Hatch

(R., Utah), a Finance Committee member and published songwriter, also advocated for the transform.

In addition, the 3.8{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3} tax that applies to most cash gains and other passive money of higher earners possible does not implement listed here because the songwriters are energetic members in the business enterprise, according to Mr. Epstein.

Just about every time someone streams a music composed by Mr. Dylan, royalties will move to Common Music, which is explained to have compensated the singer $300 million to $400 million.



Photo:

Noriko Hayashi/Bloomberg

For people wondering ’bout the authorities, timing matters, much too. The favorable provision for songwriters may well not last without end and neither might today’s funds-gains tax premiums.

With a Democrat in the White Home for the up coming 4 yrs, tax rates are most likely heading up or remaining flat. President-elect

Joe Biden

has proposed raising the prime tax amount to 39.6{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3} and taxing cash gains at ordinary-revenue rates for persons earning far more than $1 million on a yearly basis. His ability to turn all those suggestions into regulation will be limited until Democrats acquire control of the Senate in Georgia’s runoffs Jan. 5, but any individual who wishes to lock in the Trump-era rates with certainty desires to act in 2020.

“There was a ton of worry in the bowels of Hollywood around how the Biden prepare would have an affect on the taxation of rights homeowners,” suggests Mr. Epstein.

In addition, some Republicans tried to repeal the special provision for musicians in the 2017 tax overhaul in advance of reversing training course, but the concept could resurface.

Songwriters could also have interaction in procedures to cut down point out taxes just before they make a sale, this kind of as shifting to a lower-tax point out. Mr. Dylan’s condition-tax dwelling isn’t regarded, even though he has long experienced a residence in California. The state’s substantial 13.3{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3} money-tax amount applies to funds gains as perfectly as to ordinary cash flow like wages.

An even much more complicated procedure includes so-termed incomplete non-grantor trusts in states these kinds of as Nevada. This can be challenging and expensive, but the notion is to press the tune catalog’s money outside of a significant-tax point out, so those income have no way house.

“If you do it effectively, then your catalog sale, even if you live in California, will not be subject matter to California tax,” suggests Bob Jason, a companion at management organization NKSFB LLC in Los Angeles who has encouraged artists on catalog gross sales.

To be absolutely sure, Mr. Dylan’s sale probable limitations his ability to deploy estate-tax scheduling techniques employed by the rich.

By marketing his catalog now, he presents up the “step-up” that could exempt the value of his tunes from cash-gains taxes at his demise. That favorable provision would have subjected his heirs only to taxes on gains soon after that day and only if they market. Then again, Mr. Biden has proposed to minimize that benefit for the wealthy, treating loss of life as a taxable function for individuals unrealized gains.

Mr. Dylan, age 79, also cannot use procedures to lower the catalog’s value after his demise through estate-tax proceedings. Without the catalog, his estate could also have a lot less capability to distribute tax payments more than 15 many years, which is authorized if a chunk of assets are in an lively small business.

In return, he has attained liquidity and simplified his affairs both of those for himself and his heirs. Andrew Katzenstein, an estate attorney with Proskauer Rose in Los Angeles who advises large-internet-truly worth clientele, suggests lots of wealthy people today make these types of decisions as they get older.

“He has obtained himself cash when the sector is strong at the lowest earnings-tax rates. Now he has income to spend on points he enjoys,” he provides.

For the prospective buyers of Mr. Dylan’s blue-chip catalog, there are prospective tax advantages as nicely.

With desire prices near historic lows, potential buyers want the regular yields that music royalties guarantee to provide. That has led to a rush of deal-making. Very last month, songwriter Stevie Nicks bought 80{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3} of her rights in a deal that valued her entire catalog at $100 million. Other musicians who have marketed this 12 months consist of Consider Dragons and the Killers.

Folks and U.S. investors in funds purchasing catalogs generally have a 37{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3} top rated tax fee and largely nondeductible condition taxes, but corporate consumers have a 21{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3} cash flow-tax rate with deductible point out taxes. That indicates an earnings stream could be worthy of additional to a company on an following-tax foundation than to an unique.

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“The money is heading to be taxed substantially additional evenly in Vivendi’s palms than it would have been taxed in Dylan’s fingers,” stated Lawrence Zelenak, a Duke College legislation professor.

What’s more, the potential buyers can amortize their obtain value, frequently around 10 to 15 several years. So the income stream arrives with a stream of deductions that lowers the buyer’s tax monthly bill in a way that personal creators can’t do.

“It’s heading to be a shelter to the revenue stream,” said Mark Kaplan, a associate at accounting firm Citrin Cooperman in Beverly Hills, Calif. “If you’ve laid out $50 million, you want to be ready to write off that $50 million in opposition to cash flow.”

Buyers can also engage in tax tactics to decrease state and international taxes. Firms normally set up Delaware keeping firms that can aid them keep away from state taxes, explained Xuan-Thao Nguyen, an Indiana University law professor who reports mental home.

Abroad, she explained, they can attempt to use holding businesses in Singapore or Luxembourg to reach similar outcomes, as they choose Mr. Dylan’s tracks and go knock, knock, knockin’ on haven’s door.

President-elect Joe Biden campaigned on increasing taxes on the wealthy and corporations. But the destiny of Biden’s program rests largely on regardless of whether or not Democrats acquire handle of the Senate. WSJ’s Richard Rubin points out. Photograph: Olivier Douliery/AFP/Bloomberg

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