Michigan Tax Credits Lure Music Industry

Katherine Yung
Gannett News Service

Decades after Motown Records put Detroit on the world's entertainment map, a little-noticed tax break could help usher in a new era of music-making in Michigan.

The state is offering tax credits of up to 42 percent for the production of music CDs and videos. The credits were designed to lure big-name artists to record in Michigan, which already is home to chart-topping performers such as Eminem, Kid Rock and Bob Seger.

The incentive is tucked away in the package of tax breaks for the movie industry. But Michigan officials have not promoted it because they have put all of their efforts into growing the state's film business.

As a result, even though the tax credit has been available since April 2008, no one has taken advantage of it, which may change as more people learn about the incentive.

"If we could market that with the labels, do you know how much business we could bring to Detroit?" asked Brian Pastoria, a partner at Harmonie Park Studios, a Detroit recording studio. "It would be an incredible thing."

Like many others, Pastoria didn't know about the tax break. When Pastoria heard about Michigan's tax breaks for recording artists, he was so excited that he quickly told his contacts at major recording labels.

"They had no idea," he said. Were they interested in the incentives? "Very much so," he said.

"This makes all the sense in the world," said Pastoria, who has worked with a number of prominent artists, including Aretha Franklin, Eminem and the Velvet Hearts. "I think it could start something. This is huge."

He's working on bringing production of a new tribute album for British music legend Frankie Miller to his studio, and the tax credits would definitely help. Making the album could easily cost $1 million because it would involve more than a dozen top performers.

To be sure, Michigan's music incentives won't help everyone. They can be claimed by only those who spend at least $50,000 in the state. Big-name artists backed by major record labels usually sink much more than $50,000 into an album. But other performers won't be able to meet the requirement.

"They are going to exclude a lot of independents," said Al Sutton, who records and mixes Kid Rock's albums and owns Rust Belt Studios in Royal Oak.

Sutton noted that if the requirement were lowered to $20,000, he could lure several out-of-state bands to record at his studio.

Ken Droz, a spokesman for the Michigan Film Office, which administers the incentives, said that artists with small budgets don't need the tax breaks. For major performers, spending $50,000 "is a song," he added.

Companies that meet the re-quirement can get up to a 42 percent tax break, the same percentage that's offered to movie and TV production companies. The law defines a sound recording as "a recording of music, poetry or spoken-word performance." It must be in a digital media format, such as a CD.

Just like with movies, companies must apply for the tax breaks in advance, and it usually takes a year before the money is paid. Anyone building a recording studio in Michigan also can qualify for the tax credit, Droz said.

While the Michigan Film Office has not marketed the tax breaks and has no plans to do so, that isn't stopping a few companies from exploring the incentive's potential benefits.

Dickinson Wright, a Detroit-based law firm, has a Nashville, Tenn., office that's looking at the tax breaks for some of its clients in that music industry hub, said Steven Enwright, one of its entertainment attorneys.

Unity Studios, which has begun building three sound stages in Allen Park, plans to operate at least one room for recording music at its facility, said Eric Cedo, the company's director of marketing.

"The music industry and film industry go hand in hand," he said. "We really need to get back to what Motown did."

Michigan isn't the only state offering tax breaks for recording artists.

In 2007, Louisiana increased its tax credit for sound recordings from 15 percent to 25 percent. Last year, it made the tax credit refundable, which means companies can get checks from the state, not just credits against their tax liabilities. The minimum spending requirement in Louisiana is only $15,000.

So far, several jazz and blues albums and movie scores have been recorded in Louisiana, as well as the Dave Matthews Band's most recent album, "Big Whiskey and the GrooGrux King."

The tax credits are "just starting to get noticed," said Sherri McConnell, executive director of Louisiana's Office of Entertainment Industry Development.

In today's multimedia world, an album is often just one marketing tool for a band, so Louisiana offers several entertainment tax credits. For example, New Orleans' Imagination Movers, a hit band for children, has a Disney Channel series, albums and concert tour.

Each of these productions can qualify for tax breaks if they are filmed, recorded or performed in Louisiana.

Michigan also offers several entertainment incentives, but so far has marketed only the ones for movies. But a new company, Fantasm 3D, hopes to be among the first to take advantage of the state's tax credit for making music videos. It's preparing to film a 3-D music video for an artist from Michigan whose name it would not reveal.

"The incentive will open the door to the idea of coming here to shoot," said Ralph Watson, Fantasm's CEO and a former performer and record producer. "There's a lot of talent here, undiscovered talent."

Additional Facts

More than movies
Films and TV shows aren't the only creative productions eligible for Michigan's 42 percent refundable tax breaks.

What else qualifies for the incentives: Documentaries, music videos, interactive games, video games, movie trailers, Internet programming, Internet videos, sound recordings, videos, digital animation and interactive Web sites.

What doesn't qualify: Radio programs, weather shows, financial market reports, talk shows, game shows and awards shows.


Anonymous said...

"What else qualifies for the incentives: Documentaries, music videos, interactive games, video games, movie trailers, Internet programming, Internet videos, sound recordings, videos, digital animation and interactive Web sites. why not join the Unity Studio,complex Allen Park?

Just a thought.

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