Heads Up: A New Tax Requirement for Letters of Direction

Heads Up: A New Tax Requirement for Letters of Direction

By Morgan Kaylor

For years, SoundExchange has enabled artists to allocate a percentage of their royalties to producers, mixers, and sound engineers – that is, “creative participants.” Once an artist has submitted a Letter of Direction (LOD) and it has been processed, SoundExchange will distribute royalties to these creative participants via a payee account, just like a recording artist or a sound recording copyright owner. The Music Modernization Act (MMA), which passed in 2018, turned SoundExchange’s longstanding LOD practice into law and introduced a new tax requirement.

What’s new?

Starting on January 1, 2020, creative participants will be considered taxable entities. This means that SoundExchange will be required to withhold taxes for these accounts unless their authorized representatives have provided us with a W-8 or W-9. If a producer or their authorized representative have not submitted a Tax Identification Number (TIN), then royalty payments earned after this date will be subject to a backup withholding for the IRS that corresponds to the producer’s country of taxation. This new requirement benefits creative participants, as SoundExchange will report their earnings directly to the IRS and provide them with a 1099 or 1042 document.

We have updated our Letter of Direction form as a result of this new requirement. The new form is available on the Letter of Direction section of SoundExchange Direct and our public website.

What do I need to do?

Please ensure that you have up-to-date tax information in your SoundExchange Direct (SXDirect) account before the Jan. 1 deadline. If you do not have tax information listed in your account, please download a W-8 or W-9 form (found in SXDirect), complete it, and upload it to SXDirect.

Also, please be sure to use the new Letter of Direction template going forward. Using the new template will ensure that there are no delays in the processing of your LOD agreements – outdated forms will no longer meet our requirements and will not be accepted for processing.

If you have any additional questions, please contact our Customer Service team at accounts@soundexchange.com or call 1-800-961-2091.