Touring is not just about the spotlight; it is also about staying compliant behind the scenes. One of the most overlooked yet critical aspects of planning a tour is managing tax obligations, which can vary dramatically across borders and jurisdictions. Whether at home or abroad, artists and companies such as bands, theater companies, dance troupes, orchestras, production companies, actors, directors, and other performing arts organizations face a maze of tax rules that can be confusing and time-consuming.
International Tours
Let us start with what artists and performing arts companies, including bands, theater companies, dance troupes, orchestras, production companies, actors, directors, and other performing arts organizations, need to know when performing abroad.
Each country has its own tax system. Outside the United States, many countries impose not only income taxes but also Value Added Tax (VAT), which is similar to a sales tax. VAT may apply to ticket sales, merchandise, and services, and artists and companies may be required to register for VAT in each country they visit.
Withholding taxes are another consideration. While tax treaties may help reduce or eliminate double taxation, it is essential to review local laws carefully. Working with local tax professionals is highly recommended to ensure compliance with country-specific regulations.
As cross-border tax issues can be quite complex, having a team of international and domestic advisors who can explain your obligations and available tax strategies is critical. Our team can assist you in mitigating your UK tax liability for future UK performance. Contact Mark Carter for questions concerning UK tax obligations.
VAT Refund Challenges
- Scenario: A European tour includes stops in Germany, France, and Italy. The artist pays VAT on hotel stays, venue rentals, and promotional services.
- Issue: While VAT may be refundable, the process is different in each country and often requires local representation and timely filing.
- Tip: Engage a VAT recovery specialist to handle filings and maximize refunds.
At Prager Metis, Steve McCrindle, a Partner, is a recognized expert in VAT compliance and recovery services. With extensive experience assisting international artists and companies, Steve provides tailored guidance to navigate complex VAT regulations across Europe. For personalized support and to optimize your VAT recovery, contact Steve McCrindle.
U.S. Tours
Whether touring or operating domestically, performing arts companies and artists face a range of tax challenges. These include federal, state, and sometimes local tax obligations.
For companies employing non-U.S. residents, U.S. tax law generally imposes a 30% withholding tax. However, a Central Withholding Agreement (CWA) can help reduce this burden. Treaty exemptions may also apply, but navigating these rules requires careful attention.
Multistate Touring and Nonresident Withholding Requirements
Touring across multiple states introduces additional tax complexities, particularly in states that impose income tax on nonresident performers. Many of these states have specific withholding requirements that apply when compensation exceeds certain thresholds. Below are examples of current withholding rates and thresholds for select states:
- California – 7% withholding on payments exceeding $1,500
- Massachusetts – 5% withholding on payments exceeding $5,000
- Minnesota – 2% withholding on gross compensation in the amount of $600 or higher
- Missouri – 2% withholding on payments exceeding $300
- North Carolina – 4% withholding on payments exceeding $1,500
- Wisconsin – 6% withholding on payments exceeding $7,000
These examples illustrate the variation in both rates and income thresholds across states. Many states offer mechanisms to reduce or waive withholding ir a state-specific exemption—but these typically require advance application and approval before services are performed.
State Nexus from Short-Term Performances
- Scenario: A band performs in five states over two weeks.
- Issue: Each state may claim “nexus” (a taxable presence), requiring income allocation and tax filings.
- Tip: Track revenue and expenses by state to simplify apportionment and compliance.
Some local jurisdictions also impose taxes. For instance:
- New York City taxes both corporations and unincorporated businesses.
- Philadelphia taxes businesses operating within the city.
- Los Angeles imposes a gross receipts tax on businesses and self-employed individuals.
These jurisdictions often require registration before operations begin.
Local Business License Requirements
- Scenario: A dance company performs in San Francisco.
- Issue: The city requires a business license and imposes a gross receipts tax, even for a one-night event.
- Tip: Research local business registration and tax rules before booking venues.
Merchandise and Sales Tax
Selling merchandise at events introduces additional tax considerations. Sales tax rules vary by state and sometimes by locality, so it is important to understand the specific requirements in each jurisdiction. Registration in certain states is often required before sales are made.
Conclusion
The tax landscape for touring artists and performing arts companies is complex, involving multiple jurisdictions and various forms of taxation, from income and sales tax to withholding obligations. To avoid costly surprises, start tax planning early and consult professionals familiar with entertainment and international tax law. A little preparation can help reduce costs significantly and stress on the road. Learn more about the Prager Metis Entertainment & Music Group and contact Michael E. Williams to discuss tax planning for your next tour!
