Songwriters Capital Gains Repealed in Tax Bill, Then Reinstated

SONGWRITERS CAPITAL GAINS

REPEALED IN TAX BILL, THEN REINSTATED

THE BAD NEWS

The “Songwriters Capital Gains Tax Equity Act” was repealed in the new tax reform bill introduced last Thursday, November 2, 2017 in the U.S. House of Representatives.

THE GOOD NEWS

By Monday November 6, 2017, the Nashville Songwriters Association International’s (NSAI) efforts resulted in the repeal being removed from the tax bill, so Capital Gains tax treatment when a songwriter sells their catalogue is still intact.

Pictured (L-R): Jennifer Turnbow (NSAI, Director of Operations), 
Wendell Mobley, Nicolle Galyon,Jana and Lee Miller (NSAI, Board President),
Bart Herbison (NSAI, Executive Director).

WHAT HAPPENED

Every time there has been talk of tax reform since the “Songwriters Capital Gains Tax Equity Act” was adopted in 2006, NSAI has pre-emptively worked to ensure it was not repealed.  This time was no different.  But, Congress needed to come up with lots of revenue for the new tax bill, and several years of tax law changes were examined. Many were rolled back in the new bill….including the “Songwriters Capital Gains Tax Equity Act.”

NSAI immediately sprang into action.  Executive Director Bart Herbison and Sr. Director of Operations Jennifer Turnbow took an emergency flight to Washington D.C. to orchestrate the effort to stop the repeal.   NSAI believed the language had to be changed before a markup of the bill began in the Committee on Monday.  So, they had that Friday and the weekend to do something seemingly impossible.

Members of Congress from Tennessee Marsha Blackburn, Diane Black and Phil Roe all contacted House Ways and Means Committee Chairman Kevin Brady of Texas to tell him of what was described as an apparent oversight.  Congressmen Lamar Smith (TX), one of the original sponsors of the bill in 2006 (as was Chairman Brady), Jason Smith (MO), a Ways and Means Committee member, Doug Collins (GA), Jim Cooper (TN), various staff members, and Texas Governor Greg Abbott all reminded Chairman Brady, or his staff, of how the bill passed in the first place and asked him to remove the language that repealed it.  NSAI Executive Director Bart Herbison spoke with Chairman Brady’s Chief of Staff explaining the history of the Act and how it’s repeal would result in unintended consequences throughout the global music industry.

The language was removed before the Committee began considering the bill on Monday, November 7, 2017. 

The Chairman said in a statement that the new language “ensures that other changes in the bill do not disturb the characterization for tax purposes of income earned by songwriters when they sell their catalogue of compositions.”

ASCAP, BMI and the National Music Publishers Association all helped in the effort.

HISTORY

Songwriters were “double taxed” in violation of the U.S. Constitution, in NSAI’s view, since 1951 when Congress adopted tax policy that history calls "The Eisenhower Rules."  They already payed income tax PLUS self-employment taxes (FICA, Medicare, Social Security) on any song-related income.  Why should songwriters pay personal taxes again when they sold their asset ---their song catalogue?

Dwight Eisenhower was running for President and published the first in a series of memoirs called “Crusade in Europe.”   He sold the rights to the book to a publisher and rightfully claimed the business rate.  Reportedly about to sell another book in the series, Democrats on the House Ways and Means Committee rushed tax legislation into law that no longer allowed book authors to claim the business tax rate on works they created.  

While there is little written record of how songwriters got thrown into the "Eisenhower Rules" bill, oral history claims that it was due to a popular entertainer who owned a movie and television production company.  The entertainer, who claimed songwriter credit for songs placed in his company’s productions, was reportedly under scrutiny by Congress for alleged anti-American activities.  After a highly publicized sale of his song catalogue, it was supposedly said, “put songwriters into the bill ("The Eisenhower Rules")".  And that’s how lore claims songwriters became ineligible for Capital Gains treatment for selling the catalogue of songs they wrote.

Regardless of how the inequitable tax situation evolved, finding songwriters paying a much higher rate than a music publisher when they both sold the same asset, NSAI set about to make the case for how the song asset should be taxed. In 2006, after seven long years of convincing Congress the inequity had to change, “The Songwriter Equity Act” was adopted.

After adoption, NSAI worked to ensure that banks recognized that when song catalogues were used as collateral on loans, they should have a greater value because of the lower tax obligation.  The bill stimulated the sales of American song catalogues, and as a by-product increased their multiple value.  The bill was worth billions of dollars over the next decade and beyond.