Legal and Management

Bill Making Recording Costs Tax-Deductible Added to Congress Budget Package

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The Help Independent Tracks Succeed (HITS) Act is now part of the $3.5 million budget reconciliation package making its way through Congress.

The bipartisan Help Independent Tracks Succeed (HITS) Act is getting another chance. After failing to pass as part of the last two pandemic relief packages, the bill has been added to the current draft of the Build Back Better Act, the $3.5 million budget reconciliation package currently making its way through Congress.

It was embedded in the package by the House Ways and Means Committee, on which two of the bill’s original sponsors -- Reps. Linda Sánchez (D-CA) and Ron Estes (R-KS) -- serve. The bill’s original sponsors in the Senate are Dianne Feinstein (D-CA) and Marsha Blackburn (R-TN).

The HITS Act, which would allow musicians, technicians and producers to deduct 100% of recording expenses up to $150,000 on their taxes in the year they're incurred, remains unchanged from its previous versions. It was first introduced in the House on July 31, 2020 (followed by a companion bill in the Senate on Dec. 3, 2020), though it failed to pass as part of the last two pandemic relief packages despite intense lobbying from independent music advocates to have it included. It was reintroduced by its original House and Senate sponsors back in March.

Under the current tax code, music creators are required to amortize production expenses for tax purposes over the economic life of a sound recording, a period that usually ranges between three and four years. If passed, the HITS Act would apply the same tax standard to music as it does film and TV productions, which already enjoy a 100% first-year deduction, helping music professionals recover from the severe economic downturn caused by the COVID-19 pandemic. According to a Copyright Alliance survey last year, 88% of creators lost income during the decline, more than double the national average for other industries. Roughly half of respondents lost 90% or more of their income.

In a statement released at the time of the bill’s reintroduction in March, Recording Academy president and CEO Harvey Mason Jr. said the HITS Act would succeed in "putting music creators on a level playing field with other creative industries -- helping thousands of independent creators get back on track by incentivizing music production, creating new opportunities and revitalizing the music economy."

The Build Back Better Act, a cornerstone of President Biden’s economic agenda, is currently undergoing a robust debate in both houses of Congress, though the bill is in jeopardy due to sparring between moderate and progressive Democrats, who must unanimously support the package owing to razor-thin partisan margins in Congress. At least two Democratic senators -- Kyrsten Sinema (D-AZ) and Joe Manchin (D-WV) -- are objecting to the size of package, with Manchin specifically suggesting it be cut down to a topline figure in the $1 trillion to $1.5 trillion range.

In the House, the 96-member Progressive Caucus has threatened to forgo a vote on the smaller $1 trillion bipartisan infrastructure bill -- the second component of Biden's "build back better" agenda which previously passed in the Senate and is currently facing a Sept. 27 deadline for passage in the House -- if the Build Back Better Act fails to pass. On Wednesday, President Biden conducted a series of meetings with lawmakers to attempt a resolution.