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CHESTERTOWN'S ARTS & ENTERTAINMENT DISTRICT
TAX BENEFITS AND INCENTIVES
To ensure a vibrant cultural life in the downtown area, the Chestertown Arts and Entertainment District offers several place-based tax abatements for
artists,entrepreneurs and landlords. These benefits go into effect January 1, 2016, as follows:
INCOME-TAX SUBTRACTION FOR ARTISTS
To qualify for the state income-tax benefit, an artist must:
The tax deduction is actually an income tax “subtraction modification.” That means that artists who create and sell work within the districts are not taxed by the State on the income derived from those sales. Also exempt from the State tax is work created in the District and sold through the Internet, or by mail order or catalogs, so long as the work is shipped from within an A&E District.
Included in the state’s definition of artistic works are
This tax benefit applies only at the state level; artists continue to pay the full amount of federal income tax. To take advantage of the program, artists submit Maryland State Tax Form 502AE when they file their state income-tax returns.
PROPERTY TAX CREDITS FOR PROPERTY OWNERS
Building and lot owners can receive property tax credits for therenovation
orconstructionofarts related spaces within the boundaries of the A&E District. Only the increase in the assessed value of the property after its renovation or construction for a certified arts use is eligible for the property tax credit.
Chestertown and Kent County committed to the fullest possible exemption theprogramallows
: a 100 percent property-tax abatement on the improvement value, and for a full 10 years. That means, for tax purposes, the owner is taxed on the original value of the renovated space for 10 years.
ADMISSION & AMUSEMENT TAX EXEMPTION
Local admission and amusement taxes are levied on the gross receipts for admission fees at recreational venues such as movies or concerts, entertainment cover charges at bars, and the rental of sports facilities and equipment. The Chestertown A&E District provides a 10-year exemption from this tax for those certified arts and entertainment activities occurring within its borders. (There is currently no business in the District that qualifies for this exemption.)
FAQs ABOUT THE A&E DISTRICT
If you have additional questions please contact Kay MacIntosh at email@example.com
How does the income tax subtraction modification work?
Qualifying residing artists will not pay any State or local income tax on qualifying income (although they still pay federal tax). Qualifying residing artists deduct the qualifying income on the tax form before their state and local taxes are calculated. A copy of this form (502 AE) can be found here.
How does one define a qualifying residing artist?
A qualifying residing artist must own or rent real property in the State of Maryland and derive income from the sale or performance within any A&E District of an original and creative work that the individual wrote, composed, or executed in any A&E District.
Will the income from the sales made by a qualifying residing artist in an A&E district outside of the one in which the artist creates, writes, composes or executes a work ofart
be counted toward the income tax subtraction modification?
Yes. Income derived by an artist from the sale, performance or publication of an artistic work within any of Maryland’s 24 A&E Districts may be considered for the income tax subtraction modification if the work is created, composed or executed in any A&E District.
Can a qualifying residing artist whose business is organized as a Limited Liability Company (LLC) take the income tax subtraction modification?
Even though an LLC is an entity, it is not an individual and therefore does not meet the statutory definition of a “qualifying residing artist.” However, according to the state income tax law, a one-member LLC may be treated as an individual and thus may be eligible for the income tax subtraction modification.
Are an artist's Internet sales counted for the purposes of the income tax subtraction modification?
Income received by an artist from Internet, mail order, and catalog sales of an artistic work created within any district qualifies for the income tax subtraction modification, as long as the artistic work is also shipped from within a Maryland A&E District.
For authors who write books, what constitutes a sale and how will it be verified?
Authors who write books can claim the subtraction modification only for income derived from books created, written or executed within and sold within an Arts & Entertainment District. Income derived from royalties, licenses, or other future revenues from the sale of reproduction or publishing rights does not qualify for the subtraction modification. Authors are responsible for documenting eligible income through their record keeping, including receipts.
What type of documentation is required for an artist to take advantage ofthe
income-tax subtraction modification?
Artists should retain invoices, receipts, certificates, photos and any other documentation to substantiate the sale and nature of the work sold.
For Property Owners:
What percent property tax credit is available in Chestertown’s A&E district and how long will it last?
Each local jurisdiction decides what percentage of the added assessment value it will exempt from property taxes after a building is improved for an arts purpose. Each also sets the number of years, from 1 to 10, the exemption stays in effect. For Chestertown’s district, the Town Council and Kent County Commissioners committed to exempt the full 100 percent of the assessed improvement for the full 10-year period.
Will the property tax credits be granted to new buildings as opposed to buildings that are just renovated?
Yes, new construction qualifies.
How about an addition onto a building?
All plans for additions to buildings for A&E District use will need to be reviewed by the Maryland Department of Assessments and Taxation (D.A.T.) to determine what proportion of the new space will be dedicated to an arts purpose.
What is the relationship between the number of years property tax credits may be granted and the designation term?
The state designates A&E Districts for 10-year periods that are then subject to renewal. Even if Chestertown’s A&E district were to expire, the tax credit granted to a property would continue to be in effect for a full 10 years.
Is the property tax credit for real estate or personal property?
The tax credit is for real property only.
If residential space is donated in-kind, can it be considered rented?
Some amount of consideration must be paid for a property to be considered rented.
How substantial must renovations to an A&E enterprisebe
for the A&E property tax credits to apply? (Example – there is a café that renovates space or adds space for a jazz band. How much of the café, space-wise, must be dedicated to jazz bands for the property tax credit to apply?)
In general, for the property tax credits to apply, the entity (such as the jazz café) must meet the definition of an “arts and entertainment enterprise” which is statutorily defined as a for-profit or nonprofit entity dedicated to visual or performing arts. Hence, if at the completionof
renovation, the establishment is still not primarily “dedicated to visual or performing arts,” it will not be considered an A&E enterprise and will not be eligible for the property tax credit. The State Department of Assessments and Taxation will determine what portion of the assessment should be subject to the credit. This will be determined on a case-by-case basis.
How is the property tax credit determined?
The State Department of Assessments and Taxation will determine the increased value of therenovated
arts related space. Please note that personal property (example: special lighting) and some improvements do not substantially add value to the real property. The local tax credit is applied to the taxes attributable to the additional value of the renovation.
How are renovations assessed?
The Department of Assessments and Taxation first becomes aware of any renovations when a building permit is issued. If a residential unit were subdivided out of the overall property, then this one property would receive an individual assessment that would reflect the increased value for that particular unit. Otherwise, for renovations that require the use of a building permit and are on units that are not legally subdivided, the assessment will be made on the total building structure’s value. Further details may be obtained from your local office of Department of Assessments and Taxation (Maryland DAT Office 410-767-1184)
What benefits apply to a gallery or non-profit in the A&E District?
An art gallery, much like any other arts or entertainment enterprise, could qualify for property tax credits, and the artists who show their work there might qualify for the income tax subtraction modification. Depending on the function of non-profits, if they pay property taxes, they may qualify for the property tax credit.
Does the state reimburse the county and town for the loss of revenue caused by the property tax credits?
No, there is no such provision for reimbursement. The property tax credit, as well as the admissions and amusement tax exemption, reduces county and town tax revenues.
Where to Find Answers… about the potential benefits of Chestertown’s Arts & Entertainment District, and more.
Chestertown A&E District
Economic Development and Marketing Coordinator
Town of Chestertown
118 N. Cross Street, 2nd Floor
Chestertown, MD 21620
Maryland State Arts Council
Ms. Pamela Dunne
Program Director – Arts & Entertainment Districts
Maryland Comptroller’s Office
GCI Revolving Loan Program
Also known as the “Open for Business in Chestertown” program, the Greater Chestertown Initiative Revolving Loan Fund was established by the GCI, a local networking organization, and SFW Foundation to aid economic development in Chestertown. It provides financial assistance through matching funds and interest-free loans to eligible individuals/businesses looking to start a new business, expand or relocate operations to Chestertown. Residency in the town is not required of the business owner(s); however, the business must be physically located in Chestertown. Download a packet about the program here.
Downtown Chestertown Association
(DCA) is a non-profit, member-based organization that promotes businesses and professional services in and around Chestertown through activities that encourage residents and tourists to visit and shop locally. It also organizes and promotes numerous popular events such as First Fridays, Taste of the Town, Crazy Days, and Holiday Celebrations.
Kent County Office of Economic Development
This county office is a valuable resource for those interested in opening or expanding a business in the county, including the county seat of Chestertown. It collaborates with state and regional programs of interest to business owners. An example is the Kent County Revolving Loan Fund, which in collaboration with the Eastern Shore Entrepreneurship Center, provides loans of up to $50,000 for individuals starting or growing a business in the area.
Contact: Ms. Jamie Williams, Economic Development Coordinator, at 410-810-2168, or firstname.lastname@example.org.
Maryland Business Lending Programs, Community Development Administration
Part of the Maryland Department of Housing and Community Development, this agency offers low interest loans to start or grow businesses in the state.
Contact: Mr. Cheivelle Hill at Cheivelle.email@example.com or 301-429-7518
Upper Shore SCORE
The local chapter of this national organization offers business advice and counsel from retired business executives. The offices are located at 122 North Cross Street, Chestertown, MD 21620. Telephone (410) 810-2969.
Maryland Volunteer Lawyers for the Arts
This group offers pro bono legal services and education to eligible artists and arts organizations on issues ranging from business entity creation to copyrights and contracts.
Maryland Small Business Development Center
This partnership between the U.S. Small Business Administration and the University of Maryland has an Eastern Region Headquarters at Salisbury University and an office at nearby Chesapeake College in Wye Mills. To learn about its free consulting for new or existing business ventures, contact Regional Director John Hickman at firstname.lastname@example.org, 410-546-33679, in Salisbury, or consultant Richard Loeffler, email@example.com, or office manager Karin Spignolo, firstname.lastname@example.org 410-827-5304 in Wye Mills. www.marylandsbdc.org