For a historic-theater sales tax increment, does retail space in adjacent property count, and do a tenant's off-site ticket sales count?

Plain-English summary

Kansas Senate Bill 76 (1999) let cities issue special obligation bonds to finance restoration of historic theaters, repaid with a "sales tax increment" — the sales-tax growth generated within the theater after it is designated. The controlling statutes are K.S.A. 12-1770 et seq. The Bill defines a "historic theater" as a pre-1940 building built for staging entertainment, operated by a nonprofit corporation, and either eligible for the Kansas register of historic places or a member of the Kansas historic theatre association. The "sales tax increment" is the state and local sales tax (imposed under K.S.A. 12-187 et seq., 79-3601 et seq., and 79-3701 et seq.) "collected from taxpayers doing business within the historic theater that is in excess of the amount . . . collected prior to the designation."

Question 1 — does retail space in adjacent property count? A theater often absorbs an adjacent building during restoration. The requester asked whether retail space in such ancillary property counts if over 50% is used for theater operations — both where the space was once part of the original theater, and where it never was.

The Department's answer. The increment reaches only sales "within the historic theater." Because the statute defines "historic theater" to include "only a building(s) which was originally part of the theater," retail space qualifies only if its building was originally part of the theater and is designated as a historic theater. Space "not designated as a 'historic theater' does not qualify," and "[t]he current percentage of use of the building appears to be immaterial." So the original-part test — not the 50%-use test — controls.

Question 2 — a tenant's ticket sales. The theater's tenant, a professional basketball team, sells tickets partly through the theater box office but also through community retailers, by mail, at the venue, and online. Which sales count toward the increment?

The Department's answer. "[A]ll ticket sales which are reported by the tenant as part of their gross receipts from the theater location and upon which they remit sales tax should be considered for purposes of the sales tax increment. This would apply to tickets sold on or off theater property." As with other Kansas increment rulings, the test is proper reporting and remittance from the location, not the physical point of sale.

What this means for you

Historic-theater restoration projects

Only sales occurring within a building that was originally part of the theater and is designated a "historic theater" feed the sales tax increment. Absorbing an unrelated adjacent building — even if you use most of it for theater operations — does not bring its retail sales into the increment. Confirm each space's original-building status and its designation.

The 50%-use idea does not drive eligibility

The Department found current percentage-of-use immaterial. What matters is whether the building was originally part of the theater and is designated, not how much of it you currently devote to theater operations.

Tenant and event sales: report from the location

A tenant's ticket sales — including those sold off-site, by mail, or online — can count toward the increment if the tenant reports them as gross receipts from the theater location and remits sales tax on them. Structure reporting so qualifying receipts flow from the designated location.

Common questions

Q: Does retail space in a building next to a historic theater count toward the increment?
A: Only if that building was originally part of the theater and is designated a "historic theater." Space that was never part of the theater does not qualify, regardless of current use.

Q: Does using more than 50% of the space for theater operations make it qualify?
A: No. The Department said current percentage of use is immaterial; the test is whether the building was originally part of the theater and is designated.

Q: Do a tenant's off-site ticket sales count?
A: Yes, if the tenant reports them as gross receipts from the theater location and remits sales tax on them — whether sold on or off theater property.

Citations and references

• K.S.A. 12-1770 (et seq.) — the Kansas tax increment / special obligation bond statutes amended by 1999 Senate Bill 76 to finance historic-theater restoration; defines "historic theater" and "sales tax increment," which the Department applied to limit the increment to sales within a designated, originally-part-of-the-theater building.
• K.S.A. 12-187 (et seq.) — the local sales tax statutes; cited in the statutory definition of "sales tax increment" as a source of the state and local sales tax revenue measured within the historic theater.

Source

• Landing page: Kansas Department of Revenue Policy Information Library
• Original document: P-1999-253

Original ruling text

Private Letter Ruling

Body:

Office of Policy & Research

November 29, 1999

XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX

Re: Kansas Sales Tax

Dear XXXXX:

Your correspondence of July 21, 1999, has been referred to me for response. Thank you for your inquiry.

In your letter you note that Senate Bill #76, which was passed by the 1999 Session, extended certain tax benefits to historic theaters. The controlling statutes, K.S.A. 12-1770 et seq., were amended to permit cities to issue special obligation bonds to finance the restoration of historic theaters by using sales tax increment financing to pay the principal and interest of the bonds. New Section 1 of the Bill defines certain terms and provides:

New Section 1. For purposes of K.S.A. 12-1770 et seq. and amendments thereto:
(a) “Historic theater” means a building constructed prior to 1940 which was constructed for the purpose of staging entertainment, including motion pictures, vaudeville shows or operas, that is operated by a nonprofit corporation and is designated by the state historic preservation officer as eligible to be on the Kansas register of historic places or is a member of the Kansas historic theatre association;
(b) “sales tax increment” means the amount of state and local sales tax revenue imposed pursuant to K.S.A. 12-187 et seq., 79-3601 et seq. and 79-3701 et seq., and amendments thereto, collected from taxpayers doing business within the historic theater that is in excess of the amount of such taxes collected prior to the designation of the building as a historic theater for purposes of this act.

In your letter you note that in order to convert a historic theatre property into a performing arts facility, to expand services to patrons, and/or to meet modern safety codes, it is often the case that a building adjacent to the facility will be purchased or granted into the theatre. In some cases it may be possible to prove or at least assume through available evidence that the new space was once a part of the original theatre property. In others it may be proven or assumed that the two were always independent spaces. In either case, the new space becomes an active and fully integrated part of the theatre, both physically and operationally, as the result of the theatre restoration.

Based on this information you ask two questions. First, “Can the sales tax revenue of a retail space within ancillary property owned by the theatre that was at one time a part of that theatre be applied via Senate Bill #76, if over 50% of the ancillary property is used for theatre operations?” Second, “Can the sales tax revenue of a retail space within ancillary property owned by the theatre but NOT ORIGINALLY A PART OF THE THEATRE ITSELF be applied via this legislation, again if over 50% of the ancillary property is used for theatre operation.” (Emphasis in original.)

As noted in subsection (b) of the definitional section set forth above, “ ’sales tax increment’ means the amount of state and local sales tax revenue . . . collected from taxpayers doing business within the historic theater that is in excess of the amount of such taxes collected prior to the designation of the building as a historic theater for purposes of this act.” This language makes it clear that sales tax revenue of a retail space doing business within a building designated as a “historic theater” qualifies for consideration as part of the sales tax increment. It is equally clear that sales tax revenue of a retail space doing business within a building which is not designated as a “historic theater” does not qualify.

The term “historic theater” is defined by subsection (a) of the statute, as set forth above. In our opinion, the term includes only a building(s) which was originally part of the theater. The current percentage of use of the building appears to be immaterial.

Your letter goes on to note that the XXX XXXXX XXXXX has as a tenant a professional basketball team. The team is administered and managed within the original theatre property. The marketing and a portion of the sale of tickets to their games takes place in that theatre property, and a portion of their tickets will be sold through the theatre’s own box office. However, a sizable portion of their tickets are sold at retailers within the greater community, by mail and at the game venue itself. Some may also be sold via the internet.

Based on this information you ask, “May the entire amount of sales tax generated by the tenant be applied via Senate Bill #76, or only that generated by actual sales transactions taking place on theatre property? (Keep in mind that while some final purchases may take place off of theatre property, all of the ‘product’ and its marketing is created, financed and manage on theatre property.)”

In our opinion, all ticket sales which are reported by the tenant as part of their gross receipts from the theater location and upon which they remit sales tax should be considered for purposes of the sales tax increment. This would apply to tickets sold on or off theater property.

This private letter ruling is based solely on the facts provided in your request. If it is determined that undisclosed facts were material or necessary to make an accurate determination by the department, this ruling is null and void. This private letter ruling will be revoked in the future by operation of law without further department action if there is a change in the statutes, administrative regulations, or case law, or a published revenue ruling, that materially affects this private letter ruling.

I trust this information is of assistance. If I can be of further service, please feel free to contact me.

Sincerely,

Jim Weisgerber
Attorney
Tax Specialist

JW:jw

Date Composed: 12/01/1999 Date Modified: 10/11/2001

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