Royalty Mayhem: Australian Record Labels Get Tricky With Taxes

The Australian MMF has reported a royalty situation which could be of particular interest to managers who have secured deals where their Artist’s royalties are calculated on the retail price per unit, less local taxes and packaging deductions.

In 1996, ARIA (the Australian Recording Industry Association) were granted a lower sales tax (retroactive to 1993), as inserts of 8 pages or more were deemed “books”. Books are not taxed in Australia. Therefore, a component of the product was determined to be unfairly taxed.

The tax charged to ARIA member companies by the Australian government was reduced from 22% to 16.70% for full price CDs, 12.89% for mid price CDs, and 4.85% for budget priced CDs.

To illustrate the difference, if an artist's record retails at $10.00, a 22% tax is deducted = $7.80. A packaging deduction of 20% ($1.56) is taken to arrive at a royalty base price of $6.24. An artist with an 18% royalty rate would receive $1.12 per unit calculated on the old method of taxation.

The same process, calculated at the discounted tax rate granted to ARIA members, would pay the artist $1.20 per unit sold. The discrepancy in this example, which represents the least possible difference between the old and the new tax rates, is $.08 per unit.

Unfortunately, ARIA, having come to a private agreement with the Australian government, did not advise artists or record producers of the change, nor apparently did the alteration appear in the statements or payments rendered to artists and producers. Even now, it is not common knowledge.

Artists who have a retail-based deal have been greatly disenfranchised by this arrangement. For certain artists (depending on the full/mid/budget classification of their sales), the miscalculation could be by a margin greater than 10%. Artists with contracts stipulating the record company must pay for the cost of an audit if at least a 10% discrepancy is determined might be able to recover royalties at the expense of the label.

Contributed by Nathan Brenner, MMF-Australia; Reviewed by Ben McLane, Esq.