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

From The Wall Street Journal:

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

The sale of Bob Dylan’s songwriting catalog to Universal Music Publishing Group, announced this week, likely means he is trading an ongoing income stream for a lump sum now. The price hasn’t been revealed but is said to be between $300 million and $400 million.

Mr. Dylan’s sale is the latest and largest of a spate of similar deals this year that come with significant tax benefits both for the songwriters selling the rights and for the companies buying them, and those incentives are encouraging transactions.

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

There are, for sure, important nontax reasons for artists to cash in when they may have been reluctant before. Concert revenue has dropped sharply during the pandemic and prices for music rights are rising, now at 10 to 20 times the annual royalties.

. . . .

For musicians, a key advantage is that they can sell self-created works and owe capital-gains tax rates of 20% on the sale. That’s instead of owing ordinary tax rates of up to 37% each year on the royalty income they get from streaming, licensing and other uses of their works.

The lower capital-gains rate isn’t available to painters, filmmakers or videogame developers, who pay ordinary income-tax rates on sales as well as royalties.

The advantage exists because in 2006, senators and congressmen heeded the call of the country-music industry and created a special provision for songwriters.

. . . .

In addition, the 3.8% tax that applies to most capital gains and other passive income of higher earners likely doesn’t apply here because the songwriters are active participants in the business, according to Mr. Epstein.

. . . .

“There was a lot of fear in the bowels of Hollywood over how the Biden plan would affect the taxation of rights owners,” says Mr. Epstein.

Link to the rest at The Wall Street Journal (PG apologizes for the paywall, but hasn’t figured out a way around it.)

4 thoughts on “Bob Dylan’s Catalog Sale Highlights a Tax Advantage for Songwriters”

  1. Given that it’s the WSJ it’s no surprise that they home in on the tax angle. Indeed, this could be part of the motivation. However, Dylan is 80 next May and is not noted for having ever had a healthy lifestyle, so this could just be a deck clearing exercise designed to sort out his IP assets rather than leave his children to fight over them.

    Sorting this out before death is something any successful artist or author should be doing. Often an author’s copyrights – where they have retained them, more likely for short fiction than novels – end up in the hands of executors and then beneficiaries who have no idea what to do with them. Most authors don’t get someone like J. Michael Straczynski as their literary executor.

    • Don’t underestimate the tax factor because, looking forward, the tax climate is going to get unfriendly in certain states. Maybe all, depending on January 5 plays out.

      Specifically, in certain cyanotic circles the idea of a Wealth Tax has gained currency; taxing not just income and consumption but all net worth. Progessively, of course.

      So monetizing rights and spreading the income among heirs would reduce the lien, which would tax tbe *value* of the rights in addition the annual revenues. So, Dylan for example, would pay sales tax, income tax, plus a surcharge on the value of the copyrights. Effectively, next year’s earnings or even post-death earnings. Sell and split and he avoids or at least minimizes the third tax load, depending on how “progressive” the new scale runs. Nominally the take is small but since is persistent, year after year, it can quickly add up.

      As a side note: a number of millionaires and large business are moving their Headquarters out of Silicon Valley, usually Texas, for a savings of around 17% on taxes. Elon Musk had tbreatened it and he did. Oracle and Hewlett-Packard hadn’t threatened it but did it too. Lots of other lesser lights, too. Even working stiffs.

      Very underreported internal migrations are underway and taxes are a big part of it.
      Especially now, with work from home taking hold.

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