When Music Became Tax-Exempt: “First-Class Orchestral Music”

On Tuesday, I wrote briefly about when the New York Philharmonic got its tax exemption. Yesterday, I dug back even further to what (may be?) the origins of orchestral tax exemption. In 1919, the Bureau of Internal Revenue issued a ruling (23-19-546 as best I can tell; it’s available in 1919-1 C.B. 147) analyzing the deductibility of donations made to orchestras. 

According to the ruling, the orchestra in question was incorporated as a nonprofit corporation under the relevant state law. No part of its income inured to the benefit of a private shareholder or its equivalent. Its mission included “encouraging the performance of first-class orchestral music” and it provided both free concerts and concerts for which it charged admission (though, it said, less admission than other like-quality entertainment). It meant its concerts to “educate the musical taste” of attendees. (Fascinatingly, instead of “attendees” or “audiences,” the ruling called them “auditors.”) It also provided training to musicians. And, perhaps critically(?), its expenses always exceeded its concert revenue, with the difference made up by donors.

The Bureau agreed that donations to the orchestra were deductible. It pointed out that music was recognized as one of the “liberal arts and sciences” and that “every public school” offered musical instruction. Educating people in how to perform music was important but, equally important, the orchestra provided “education of the taste for music of the better class.” And even the fact that the education could be pleasurable didn’t destroy its educational quality!

Do these standards still apply? Well, I suspect most orchestras continue to not be profitable. Do they charge less than comparable entertainment? Tickets to the amazing Chicago Symphony Orchestra are less expensive than the Taylor Swift tickets I still haven’t managed to get for my daughters. But they’re not cheap; I suspect they’re roughly the same cost as other comparable symphonies (which, for what it’s worth, are probably also tax-exempt organizations).

It also gives some hint as to when a musical performer will shift to nonprofit, tax-exempt status. Taylor Swift and Måneskin (for whom I did get tickets for my daughters!) are still profitable; even if they’re incorporated (and, fwiw, plenty of bands have some sort of corporate identity), they likely want to share those profits.

So perhaps music becomes nonprofit and tax-exempt when it is no longer profitable. And if that’s the case, even the most profitable music of today may, sometime in the future, become exempt.

Samuel D. Brunson 

Image: Save the Orchestra banner outside City Hall, Temple Digital Collections. Another similar banner (and better photo, imho) can be found here.