How do the A&E Property Tax Credits work?

A county or municipal government may grant by law a property tax credit against county and municipal property taxes for up to 10 years for a qualified property in an Arts and Entertainment District. It is up to the local governments to determine in their ordinances the amount and duration of the credit. The early A&E districts followed the “Enterprise Zone Credit” model to grant credits on the difference between the new assessment on the property after renovations or construction and a base year assessment the year before the improvements are made. The examples listed below illustrate how the credit works under this type of credit provision.

Example 1:
An artist (painter) purchases a new studio/loft condominium residence in a former federal government office building converted into artists; residences and work space in the Havre de Grace A&E District. The artist pays $405,000 for the unit, and the property has a new full market value of $385,000 according to the Department’s assessment. The unit had a base year assessment in the prior year before the improvements were made of $55,000. The artist will receive a property tax credit equal to the local taxes on $330,000 of eligible assessment ($385000 assessment minus a $55,000 base year assessment). The actual tax savings to this artist in silver Spring are $3,191.10 ($330,000 assessment times a local tax rate of $0.967).

Example 2:
A developer buys a commercial building in Havre de Grace previously used as a shoe manufacturing facility for $150,000. The existing assessment is $90,000 on the land and $60,000 on the improvements. Because of local fire regulations, the predominantly wood structure is demolished. The developer then builds a new mixed-use facility that will be used for an artist supply store, a coffee house with a space for performing artist, and office space for a small graphic arts firm. For ease of discussion, each of the three respective uses occupy one third of the total usable space. The Department places a new total full market value on the building and the land of $750,000. If all of the uses were qualified under the law as an A&E purpose, a credit would be granted on $660,000 of assessment ($750,000 total assessment minus $90,000 base year assessment on the land). The reason why the credit is granted on the newly constructed premises is because of the change in the law in the 2005 session and because the particular property was zoned for commercial use at the time of demolition. Based on three different uses in the new building, here is how the new credits will actually be applied. One-third of the total assessment equals $250,000, and this amount is eligible because of its use as an artist supply store. The second section of the building is used as a coffee shop with a performing artist space but only $25,000 of assessment represents the value of the performing artist space. The final one-third of the building to be occupied by a graphic arts firm is not eligible for any A&E credit because “industry-related” uses are excluded under the law at Article 83A. § 4-701(a)(2) (iii). The total amount of A&E credit for this mixed-use building would be granted on $242,000 of assessment ($250,000 for the supply store; $25,000 for the small performing artist space, and the deduction of $33,000 of base assessment from the total $90,000 base year assessment on the land). Multiplying the $242,000 of eligible assessment times the local tax rate of $0.967 equals $2,340.14 in actual tax savings.

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