Georgia has a very rich music history, being the home of legendary artists such as Ray Charles, the Allman Brothers, R.E.M., the B-52s, Outkast, Ludacris and many others.
Following the success of Georgia’s alt-rock/college radio scene in the 1980s and 1990s, Atlanta became the epicenter of the hip-hop music/rap scene in the 2000s. In more recent
years, however, Georgia has been losing its music industry artists, producers, managers, and other industry professionals to Nashville, New York and Los Angeles.
Making this loss more poignant, the erosion of the Georgia music industry took place against the backdrop of an immense boom in Georgia’s non-music entertainment industry (i.e., film, television and digital entertainment
productions). While the music industry shrunk in Georgia, direct spending in film and television production grew from $67 million in 2007 to $2.7 billion in 2017, according to Governor Nathan Deal’s announcement earlier this year. The growth of the film and television industry was in large part the result of the Georgia General Assembly’s passage of a competitive film tax credit in 2008: the Georgia Entertainment Industry Investment Act.
To halt and reverse the losses, and in hopes of replicating the success of Georgia’s film tax credit, Georgia’s music industry has been fighting for a music incentive for the past seven years. Led by the music industry’s political advocacy group, Georgia Music Partners, these efforts produced a surprise win during the 2017 legislative session. Effective Jan. 1, 2018, the General Assembly passed the Georgia Musical Investment Act (HB 155), which creates a new tax incentive for music production in Georgia. The Georgia Musical Investment Act won over a competing piece
of legislation that would have exempted music royalty payments from Georgia income tax.
According to Tammy Hurt, founding president of Georgia Music Partners, “The goal of the incentive is to retain Georgia talent and create jobs which include musicians, logistics consultants, caterers, lawyers, accountants, composers, engineers, stage designers, lighting designers, managers, promoters and booking agents. This type of ecosystem can employ thousands in Georgia. Most importantly, music is a scalable sector: more content
begets more jobs and revenue.”
HOW THE CREDIT WORKS
The act provides for a Georgia income tax credit equal to 15 percent of a music production company’s qualified production expenditures in the state. For expenses incurred in Georgia’s least developed counties, as ranked
by the Georgia Department of Community Affairs (www.dca.state.ga.us/), there is an extra income tax credit of five percent, bringing the maximum possible credit up to 20 percent. To the extent credits generated exceed
a production company’s Georgia income tax liability, the excess of the credits can be taken against the company’s employer withholding liability (which is a form of a cash grant to the company) or carried forward for five years. The
credits are not transferable or refundable (i.e., you can’t sell them for cash or have the state issue a cash refund).
The credit applies to the following kinds of musical productions:
A touring musical or theatrical production (including touring concerts, ballet, opera, or other live variety entertainment) that originates and is developed in Georgia and has its initial public performance before a live audience in the state, or that has its U.S. debut in Georgia after preparing and rehearsing for at least seven daysin the state;
A recorded musical performance, including, but not limited to, the score and musical accompaniment of a motion picture, television or digital interactive entertainment production.
In order to claim the credit, the production company must first meet certain minimum spending thresholds in the state.
For musical or theatrical productions, $500,000 during a taxable year;
For a recorded musical performance incorporated into a film, television, or digital interactive entertainment production, $250,000 during a taxable year;
For any other kind of recorded musical performance, $100,000 during a taxable year.
There is a payroll cap of $500,000 for payments to any single employee or related loan out company.
Qualified production expenditures include costs for recording, studio and music equipment rentals, set construction and operation, wardrobe, makeup, accessories, photography, lighting, editing, vehicle and transportation costs, food and lodging, payments to employees, talent and producers or their loan outs, insurance and bonding, and other direct costs of production in accordance with generally accepted music industry practices.
The production company must apply for certification of the musical production with the Georgia Department of Economic Development (DECD). Rules for the application process and criteria for selection have not yet been issued by the DECD, though it appears the Department of Revenue (DOR) will require pre-approval to claim the credits. After expenditures are incurred in association with a certified project, the expenses must be claimed on the production company’s Georgia income tax return.
COMPARISON TO FILM TAX CREDIT
Unlike the film tax credit, which has no cap, the music tax credit is capped annually, with the cap set at $5 million for 2018, $10 million for 2019, and $15 million thereafter until the credit sunsets in 2023. The credit will be awarded to production companies on a first-come, first-served basis and no single production company may claim more than 20 percent of the annual credit allocation.
Another difference alluded to earlier is that the music credit can’t be transferred or sold to a third party for cash. Accordingly, the value of the credit will be limited to the production company’s Georgia income tax or employer withholding tax liability over a six-year period.
It should also be noted that the recording of musical compositions for movies, television and digital games in Georgia also qualifies for credits under the film tax credit. However, the same expenses can’t be claimed for both the film tax credit and the music tax credit.
Because the music incentive is not transferrable or refundable, it remains to be seen whether the music credit will have the same kind of success as the film tax credit in attracting investment by the music industry in Georgia. The hope is that Georgia’s natural advantages in attracting the music industry (e.g., international airport, diverse and culturally rich cities, low cost of living, etc.), when combined with the new music tax incentive, will be enough to give Georgia a key advantage in attracting and retaining a thriving music industry.
Peter Stathopoulos is a partner at Bennett Thrasher LLP, one of the country’s largest full-service certified public accounting and consulting firms, and head of the firm’s Entertainment Practice.