(Bloomberg) Alexander Hamilton introduced the idea of federal taxes. Broadway producers enjoying a record season buoyed by his namesake musical are lobbying Congress to limit what they owe.
The industry, which will celebrate its success this weekend at the Tony Awards, is fighting to keep a provision that allows live-theater backers deductions in a show’s first year. That means they’d pay tax on income only after turning a profit. The provision passed in 2015, yet needs to be extended by Congress this year to survive.
In an industry where four of five performances close without recouping startup costs, producers say such a sweetener will keep the hits coming. While the provision was tacked onto a list of tax breaks last year at the behest of New York Senator Charles Schumer, there’s no guarantee it will be continued, producers and their lobbyists say. Some lawmakers don’t like the idea. Nor do advocates of tax cuts, who say such breaks make it more difficult to reduce the burden on everyone else.
“It’s crazy,” said Representative Tom Marino, a Pennsylvania Republican who says he opposes an extension. “With that kind of thinking, no matter what the circumstances, if you lose money, you can write that off. And who pays for it? Middle-class taxpayers.”
Taxpayers for Common Sense, a Washington-based group that opposes government waste, says Broadway shouldn’t get special treatment.
“Everyone has a pet provision that they try to load into the tax law,” said Steven Ellis, spokesman for the group. “Why should a Broadway show, or television or movies, be considered different from any other business?”
Ten-Dollar Founding Father
At stake, according to Broadway producers, is the continued health of an industry that contributed more than $12 billion to New York City’s economy last year, bolstered by sold-out hip-hop musical “Hamilton” and other hits like “The Lion King” and “Wicked.” Producers say the industry’s high-risk nature precludes them from financing shows with money from banks or venture capitalists.
Aside from the daunting odds of scoring a hit, it’s struggling with increased costs, said producer Tom Viertel, whose credits include “Penn & Teller on Broadway,” “The Producers” and “Angels in America.” In the 2014-2015 season, Broadway investors lost more than $200 million on shows that didn’t make it, he said.
The IRS code made raising money even more difficult by requiring producers to estimate how long it would take for a show to recoup its initial capitalization, and based on that, investors would have to pay taxes on the show’s anticipated first-year profit, which producers called “phantom income.” If the show didn’t make money, investors could apply for refunds on their tax payments years later.
“Our investors would get irritated when they found themselves paying taxes before they got money back,” Viertel said. “The notion of paying a tax on a profit you haven’t received is obnoxious, and it took six years of hard lobbying to solve the problem.”
The Broadway League, an association of theater owners and producers that spearheaded the campaign, hired Washington lobbyist, QGA Public Affairs, founded by Jack Quinn, who was counsel to former President Bill Clinton, and Ed Gillespie, a past chairman of the Republican National Committee and counselor to former President George W. Bush.
In New York
Congress voted in December to give live-theater investors for one year the same deduction that motion picture and TV investors get. Now it’s up for renewal, with a vote expected after the November elections.
Schumer, who led the effort last year, enlisted support from Republican U.S. Senator Roy Blunt of Missouri, where country-music shows attract buses filled with tourists. Representative Doug Collins, a Georgia Republican, also helped in the House. The non-New Yorkers signed on at the urging of performing-art centers and theaters in their states who said they rely on touring Broadway shows to stay in business.
“There is a thriving live-theater culture in Missouri, not only in Branson, but in Kansas City, St. Louis and across the state,” Blunt said in an e-mail. “Live theater should be encouraged and often employs more local people and can have a bigger economic impact than TV and movie productions.”
Touring shows across North America grossed almost $1 billion and attracted audiences totaling almost 14 million in 200 cities, according to Charlotte St. Martin, president of the Broadway League.
In New York, during the season that ended May 22, Broadway shows attracted a record audience of more than 13.3 million, up 1.6 percent from a year earlier. Revenue totaled $1.373 billion. St. Martin said the industry supports at least 89,000 jobs and has a local economic impact of $12.57 billion. Combined with the touring shows, the industry contributes about $15.8 billion nationwide, according to the Broadway League.
Of more than 50 shows offered last year, the top-five grossing—“Hamilton,” “The Lion King,” “Aladdin,” “Wicked” and “The Book of Mormon”—reaped almost a third of the total.
Fend for Yourself
A long-running hit could give investors lucrative returns for years, particularly when shows go on tours or spin off into television or film, said Ken Davenport, whose productions include “Kinky Boots” and “Spring Awakening.”
“Investing in Broadway shows is a lot like investing in a restaurant, a piece of art, or frankly, in any entrepreneurial startup,” he said. “And since shows can now run five, 10 or 20 years and spawn multiple companies, the upside can be huge.”
“Hamilton,” for instance, grossed $74 million over 45 weeks of the 2015-16 season, selling out every week, according to the Broadway League, and investors could make millions themselves.
Ellis, of the taxpayer advocacy group, lumps the tax break with other special-interest tax bills, including accelerated depreciation for investing in NASCAR tracks or race horses, and rebates for Virgin Island or Puerto Rican rum. He says he’s mobilizing Republican lawmakers to reject it.
The issue will be hashed out before Congress ends its work, said Senate Finance Committee Chairman Orrin Hatch.
“It’s imperative the committee and members in Congress as a whole evaluate the current tax extender provisions,” he said.
Marino, of Pennsylvania, says he’s already made up his mind.
“If these guys aren’t bright enough to put anything together that makes money, tell them to get out of the business,” he said.
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