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tax credits & faq

property tax credits faqs

1. The local jurisdiction may choose any period of up to 10 years for the duration of the property tax credit and any percentage up to 100%, and applies to all qualifying taxpayers. For example, there could not be different rates for space for qualifying residing artists than there are for arts and entertainment enterprises. 

The City of Salisbury legislation, supported by a Resolution from Wicomico County offers these tax benefits for a period of 6 years, from the approval of the resolution.

2. Property tax credits may be granted to new buildings, in addition to buildings that are just renovated. (As of legislation enacted July 1, 2005.) Please note that there may be other restrictions to new construction within the A&E District due to other zoning or historic designations.

3. All plans for additions to buildings for A&E District use will need to be reviewed by the Department Assessments and Taxation (D.A.T.) for use and proportionality of the project to ascertain the eligibility for the property tax credit. Please call Bob Young, of D.A.T. (410) 767-1191 for assistance. 

4. Each jurisdiction may decide what percentage credit to offer and for how many years, not to exceed ten. Even if the designation of an A&E district expires, the property tax credit continues to be available for a qualified renovated property in the district for the designated term of the credit. The determination of the A&E designation is independent of the possible length of term of the property tax credits. The term of an A&E district designation is ten years with the possibility of renewal or expansion. 

5. A property tax credit may be granted for the increased assessment due to renovations on a manufacturing, commercial or industrial building that is located in an A&E district and is wholly or partially renovated for use by a qualifying residing artist or an A&E enterprise. 

6. The property tax credit is for Real property only.

7. How substantial must renovations be to a business for the A&E property tax credits to apply? (Example scenario - there is a cafe that renovates space or adds space for a jazz band. How much of the cafe, space-wise, must be dedicated to jazz band for the property tax credit to apply?) 

In general, for the property tax credits to apply, the entity or cafe, for example, 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 completion of renovation, the establishment is not dedicated to visual or performing arts, it will not be considered as an A&E enterprise, and therefore, is not eligible for the property tax credit that applies in the A&E Districts Program. Ultimately, the local office of the State Department of Assessments and Taxation will determine on a case-by-case basis if an establishment is an A&E enterprise. 

8. How is the property tax credit determined? 
The State Department of Assessments and Taxation will determine the increased value of the renovated 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 percentage is applied to the taxes attributable to the amount of the increased value. 

9. How are renovations assessed? 
The Department of Assessments and Taxation will not be aware of renovations unless a building permit is obtained. 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. 

Income Tax Subtraction Modification 
1. How does the income tax subtraction modification work? 
The income tax subtraction modification works in the following manner: Qualifying residing artists will not pay any State or local income tax on qualifying income (although they pay federal tax on it). Qualifying residing artists will deduct the qualifying income on the tax form before their state and local taxes are calculated. 

2. 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, not an individual and therefore does not meet the statutory definition of a "qualifying residing artist, the state income tax law affords special treatment to a one member LLC. If the LLC has only one member, the LLC may be treated as in individual. Therefore, the LLC may be eligible for the income tax subtraction modification. 

3. If most of an artist's income is made inside an A&E district but the artist also makes some Internet sales, can the Internet sales be counted toward the artist's income for the purposes of taking advantage of the income tax subtraction modification? 
The Comptroller of the Treasury will determine this response and issue Regulations. 

4. Will the income from the sales made by a qualifying residing artist in a State designated A&E district outside of the one in which the artist owns or rent property be counted toward the income tax subtraction modification? 

The Comptroller of the Treasury will determine this response and issue regulations. 

5. For authors who write books, what constitutes a sale and how will it be verified? 
The Comptroller of the Treasury will determine this response and issue regulations. 

Miscellaneous Issues 
1. If there is a jurisdiction where zones overlay one another for mixed use, can these zones for mixed-use satisfy the required residential zoning component that is necessary for a qualifying residing artist to rent residential real property? 

Because zoning laws differ from county to county it is best to consult the local office of the Maryland Department of Planning (MDP) to address this question. You may reference the local planning directors at the following State MDP website address:

2. 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. 

3. If a business is already in an Enterprise Zone, what additional benefits can a business receive from being in an Arts and Entertainment District? 
It is hard to compare and depends on what the local jurisdictions offer. The property tax credits are not closely related and should be considered separately. 

4. What benefits apply to a gallery or non-profits? 
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. 

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