The bill levels the playing field between New York-based theatrical productions and film and television shows. Current tax codes allow TV and film productions to expense up to $15 million in qualified costs, when 75 percent of compensation paid is for services performed in the United States. Broadway shows and other live theatrical productions did not previously qualify for the tax incentive.
U.S. Senator Charles E. Schumer is among those who supported of the passage of the legislation. The law allows 100 percent of an investment to be deducted by the investor from his or her income in the year of the investment.
Beginning January 2016, all forms of entertainment media will be treated similarly by the IRS, essentially allowing producers to immediately recoup their investments prior to taxes being assessed on profits earned.
Prior to this legislation, Broadway investors were required to anticipate financial liability by creatively predicting a show's duration and income, which, in many cases, resulted in tax payments on unseen "profits" before producers earned back their initial investment.
With a majority of Broadway shows closing before they recoup their investments, industry leaders felt that the theatre community faced an unfair disadvantage. With plans underway for Broadway to re-open its 41st theatre, it is hoped that this latest incentive will entice more investors to finance live theatrical productions. Broadway set all-time records for attendance and box-office income during the 2014-15 season, yielding $1.37 billion in grosses, up from $1.27 billion last season. Total attendance reached 13.1 million, up from 12.2 million last season.
Tom Kirdahy is a Tony-winning lead producer whose projects reflect the dynamic nature of business on Broadway. In recent seasons he ushered sure-fire audience gold to Broadway with the Terrence McNally comedy It's Only a Play, starring Nathan Lane and Matthew Broderick, that recouped within two months; and took a bold, artistic risk with Kander and Ebb's final work The Visit, a vehicle for stage vet Chita Rivera that played a brief, 93-performance Broadway run last spring.
Reached for comment regarding the new amendment, Kirdahy said the new law would expand the base of individuals who would be willing to invest in theatre of all kinds. "Historically, when people were told that they were treated differently for tax purposes, it was hard to bring people who have a history of investing in film or television into the theatre. This will open up many many more possibilities, and I think will do a great deal for readying people to invest in theatre without that learning curve that existed previously.
"Anyone who has done well in theatre knows that it can be enormously profitable, but when you treat live arts differently than film and television, you're sending a subtle message that this is not as good an investment and that we don't value this the way we value these other art forms. As Paul Libin always says, 'Broadway is the longest street in America.' These incentives will benefit live arts everywhere. And that's significant."
The new tax amendment arrives fresh off the announcement that Broadway will be regaining a theatre. The historic Hudson Theatre will re-open next season as the Great White Way's 41st house.
When asked if he sensed that Broadway was entering into another Golden Age with the alignment of business and art (the zeitgeist for a hit show like Hamilton made it a household name in roughly six months of public life), Kirdahy said, "Yes. Business is thriving, but more significantly, the art form is thriving. There's so much significant content right now. It has been great for the industry.
"So much has been written and said about Hamilton, but I'll add to the amount of ink spent and say that the reaction and universal embrace of this great new American musical has been great for the industry. It appeals to people of all ages and backgrounds. It's telling the artists of tomorrow, 'You can see yourself on stage.' I think the beauty of what Hamilton has achieved is being reflected in the amount of business that Broadway is doing and in the amount of really fine content that is finding its way to Broadway stages. And the fact that there are so many great shows, circling around, waiting for a Broadway theatre, is a great sign. Broadway is alive and well, not only in the hearts and minds of New Yorkers, but the entire world."
Kevin McCollum, the Tony-winning producer who made a name for himself with risking on unknown shows such as Rent, Avenue Q, In the Heights and this season's Hand to God and Something Rotten!, told Playbill.com that the legislation "eliminates a profound disadvantage (up to a $15M capitalization) that theatre producers have had for decades. We are grateful to the legislature and it was the right thing to do. To guess how much money a successful show is going to make within its first few years, and then pay tax in year one on all that potential success was a broken structure that often forced producers and investors to borrow money to pay their future taxes on a successful show that had yet to recoup. As recoupment periods have become more extended due to rising running and capitalization costs, this is welcome and fair relief. Sometimes those shows would not even make the money projected. Other times, the shows made more and the producer would be liable for penalties."
Putting it in terms of his current Broadway musical Something Rotten!, he quipped, "This bill takes relying on Thomas Nostradamus to predict your total life profit in year one out of the equation.. .and although Thomas is wildly entertaining and delightful, you don't want him doing your taxes. Remember, no one is paying less tax, we just are paying it when we receive the profit from our shows. It's only fair."
"The Broadway community is grateful for Senator Schumer's determination and his commitment to the live theatre industry," said Robert E. Wankel, Chairman of The Broadway League and President & Co-CEO of The Shubert Organization, in a statement. "We are appreciative of his continuous efforts over the past several years to ensure that theatrical investors receive the same treatment as individuals who invest in television and film. The Broadway and Touring Broadway industries have a combined economic impact of more than $15 billion dollars on the nation’s economy and employ tens of thousands of people in the U.S. and around the world, yet we are still very much made up of small businesses that actively seek financing from individual investors. This relatively small amendment to the Tax Code will have a tremendous impact on the theatre business by eliminating one of the largest challenges that producers face when trying to attract capital for what is always a highly risky endeavor. We applaud Senator Schumer, as well as the members of the Ways and Means and Finance Committees, for their extraordinary efforts and recognition of the financial and cultural impact of live entertainment."
"Finally, Congress will give its regards to Broadway," Schumer said in a statement. "By eliminating the double standard in the tax code that prevented Broadway and live theatre from receiving tax benefits, New Yorkers will enjoy more shows, more jobs and more investment in-and-around the Great White Way. Culture and entertainment is one of America’s great economic drivers and investing in live theater is absolutely fundamental to the nurturing and growth of this critical sector of our national economy as an integral part of the entertainment industry. Now, live theater—for the first time ever—can rightfully be offered the same federal tax incentives as those afforded to television and film."
In 2014, the New York State Senate approved a 25 percent tax credit that offers financial incentives for live theatrical productions to originate in New York State. Read about the legislation here.