The Rolling Stones and the Sticky Fingers of the Tax Man
Often referred to as the “World’s Greatest Rock and Roll band, the Rolling Stones created amazing music, achieved fame and fortune, and changed forever our views of art and aging. One area of their brilliance is something that most of us miss when we hit the play button – The Stones are incredibly savvy tax planners.
Mick, Keith, Charlie and Ronnie, like many of the great rock and roll musicians, have done a tremendous job in navigating the treacherous territory that comes with taxes. David Bowie became a tax exile in Switzerland in the 1970s. Ringo Starr resides in Monte Carlo. And more recently, U2 has come under fire for sheltering their intellectual property rights in the Netherlands, using an advantageous royalty tax rule. Tax planning is rock star cool.
And who better to shake up the tax establishment than rock stars? While some of the creative techniques might offend the regular tax payer, these artists’ engagement in their tax planning has helped them immeasurably. As rebels, bucking the system, they took control – learned how tax planning worked and developed a philosophy. The lesson for the average American taxpayer… you will only really feel in control of your taxes if you engage with the planning.
Often when I meet clients for the first time, I ask them if they have active tax planning. Typical answers – 1) No – what’s that? Or 2) Yes, my tax guy calls me with payments. And when I push on #2, it turns out all their tax person is doing is running the 110% test on prior year liability. That is not tax planning.
Real tax planning is learning who you are as a taxpayer and how the system treats you based on the characterization of income. Most Americans’ tax returns are pretty straightforward – W-2 income, some interest and dividends, and deductions for mortgage, real estate taxes and charity.
But even when it is that straightforward, there are levers to be pulled to maximize your situation. You can fund retirement accounts, book losses in your investment portfolio to mitigate gains, and utilize tax credits. But you have to engage to find ways to maximize. If you don’t – and don’t become familiar with the system, you aren’t going to learn key tax rules that might benefit you.
By being proactive in understanding income characterization, you can also take advantage of opportunities that arise. Sheryl Crow did this. In 2006, lawmakers from Tennessee, Kentucky and Texas changed the rules regarding tax treatment of songwriting publishing rights. Prior to 2006, the sale of such rights would have been taxed as ordinary income. However, an exception was made and going forward, sales of publishing rights would get capital gain treatment. In 2009, Crow sold her publishing rights for $10m. Her estimated tax savings was $2m. Not bad for simply knowing how the code worked.
Beast of Burden
Often taxpayers start thinking about real planning when something has gone wrong, which is exactly what happened with the Rolling Stones. From the mid ‘60s through the early 70s, they made myriad financial and tax planning mistakes. In fact, they paid no taxes for eight years. And when they sought to remedy this, they lacked the liquidity to do so. Accounts were overdrawn. Lawsuits with a former manager led to other assets being frozen. They couldn’t use their master recordings to generate liquidity as another former manager had absconded with them. All this turmoil in an environment when the UK had a 93% tax bracket on high earners. The Stones were in a huge financial mess. (For details see History of Rock Music - The Stones become tax exiles.)
The situation quickly became dire, and they had to get help and they had to plan. With the right advisors, The Stones became tax exiles in the South of France and during that time created the iconic album, Exile on Main Street. Like U2, they hold their intellectual property in the Netherlands. And today, Keith Richards resides in Connecticut while his bandmate Mick Jagger lives in France, West Indies and London. But Mick is only in London for a limited amount of days to avoid tax residency.
So if you have been in a negative tax situation, consider your inner rock star and take it as the inspiration to learn how to do planning the right way.
The education the Stones receive enabled them to become the ultimate tax planners. In 1998 they cancelled the UK leg of their Bridges to Babylon tour to save tax dollars. But it wasn’t just the band’s tax savings – they discovered that their 270 roadies would also be adversely affected by the UK leg. So, like the savvy rebel tax planners they are, they simply cancelled the leg. That’s some Sympathy for the taxpayer!
PHOTOGRAPH BY GERED MANKOWITZ © BOWSTIR Ltd. 2017/Mankowitz.com www.mankowitz.com
“The Stones and the True Story of Exile on Main Street” by Sean O’Hagan, The Guardian, April 24, 2010
Frank Mastropolo, Ultimate Classic Rock http://ultimateclassicrock.com/rock-bands-taxes/ How the Rolling Stones, Rod Stewart and David Bowie Ran From The Taxman. Accessed September 1, 2017.
“Tax Concerns Didn’t Draw Rolling Stones, U2 to Netherlands: Manager” by Linda Thompson, BNA Bloomberg, June 12, 2017