Tax-exempt loopholes

Music promoters are increasingly taking advantage of a loophole in Minnesota law that allows them to produce an event without paying state or city taxes by cosponsoring the show with a nonprofit agency. The law — intended to benefit nonprofit sponsors — is costing the state millions of dollars every year and has prompted officials to question its merits. Ultimately, the exemption does not benefit Minnesota, despite its value to nonprofit groups.
Denying tax-exempt status to music promoters would not badly hurt concert goers, musicians or producers. The money saved by not paying taxes is given to the bands, granting tax-exempt promoters an advantage in attracting musicians.
This competitive edge demands that promoters, such as Rose Presents, make use of the loophole. Jerry Mickelson, co-owner of the Chicago-based Jam Productions, said he would like to see the state abolish the exemption, even though Jam currently co-sponsors events with nonprofit groups to take advantage of the tax law.
Promoters like Rose Presents and Jam Productions believe that the added complications of organizing an event sponsored by a nonprofit agency are not worth the extra money. These same promoters would still book nationwide acts without the loophole and Minneapolis arenas and residents would not suffer. Already- high ticket prices would not rise, and big-name acts like Metallica would not bypass the Twin Cities market simply because they could not profit slightly from tax-exempt status.
Nonprofit groups will lose publicity and a little extra income if the state decides to abolish or modify the law. But the original intent of the law — allowing nonprofit agencies to sponsor events without the added burden of state taxes — has been abused by private promoters.
Nonprofit agencies are still getting legal publicity by sponsoring shows. But they are not the organizations escaping the tax penalty. Private promoters have, in a sense, assumed the privileged stature of nonprofit entities and avoided paying millions of dollars in taxes. The growing number of private-public coalitions have cost the state $3.5 million annually. It is doubtful whether the unintended benefits to Minnesota’s nonprofit agencies outweigh the great loss in tax revenue.
In any case, the law certainly requires modifications. An ideal tax code would differentiate between nonprofit-sponsorship — where the agency would bear the burden of taxes — and the public-private partnerships in question. Barring this possibility, Minnesota should recoup its losses and abolish the law.