Shuttered Venue Operator Grant: What are the Qualifications and Requirements?

Shuttered Venue Operator Grant: What are the Qualifications and Requirements?

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By Jim Chinn, CPA, Senior Tax Manager

CAA, 2021 Includes Help for Live Event Venues and Related Industries

Live event venues have had a rough year…lockdowns and social distancing policies have made it virtually impossible for theaters, concert halls, etc. to operate since March 2020. The vaccine is providing a glimmer of hope for all of us, but it will be many months (if not longer) before things return to normal. Many people have asked, will live venues survive this? Well, there may be some hope still yet…

The MASSIVE Consolidated Appropriations Act of 2021 which was signed into law on December 27, 2020, included help for live event venues and related industries via the Shuttered Venue Operators Grant (SVO) program. The program, which is administered by the SBA, includes 15 billion dollars in grants available to live event venues and related industries – 2 billion dollars of which is reserved for smaller applicants with up to 50 full-time employees.

Shuttered Venue Operator Grant Amount

The size of the grant is dependent on how long the entity has been in operation:

  • Grants for entities that were in operation on January 1, 2019, equals the lesser of 45 percent of their 2019 (pre-pandemic) gross earned revenue or 10 million dollars
  • Grants for entities that began operation after January 1, 2019, equals the lesser of the average monthly gross revenue for each full month they were in operation in 2019 multiplied by 6 or 10 million dollars

It is important to note that the legislative text specifies that the accrual method of accounting must be used to determine the revenue figures outlined above; however, any amounts received as part of the CARES Act is not counted towards revenue.

Shuttered Venue Operator Grant Qualifications

The grant is available to qualified businesses that meet certain venue requirements and other eligibility requirements. Recipients also must submit a good faith certification that the uncertainty of current economic conditions makes necessary the grant to support ongoing operations. The italicized terms are defined below.

Qualified Businesses

  • Live venue operators and promotors; theatrical producers; or live performing arts organizations which are:
    • An individual or entity whose principle business activity is to organize, promote, produce, manage, or host live concerts, comedy shows, theatrical productions, or other events by performing artists where tickets are sold and performing artists are paid
    • An individual or entity that sells tickets to the public for events described above so long as the tickets are sold at least 60 days in advance of the event date
  • Museum operators, zoos and aquariums that are non-profit organizations
  • Movie theater operators
  • Talent representatives – defined as an agent or manager who operates a for profit or non-profit activity that is primarily engaged in representing artists and entertainers; books and represents musicians, actors, or similar performing artists at live events in venues or festivals who are compensated based on number of tickets sold or a similar basis.
  • Each business entity owned by one of the eligible entities outlined above if they meet the eligibility requirement

Venue Requirements

  • Live venue operators – The venue must have the following features:
    • A defined performance and audience space
    • Mixing equipment, a PA system, and a lighting rig
    • Engages one or more individuals to do at least two of the following roles: sound engineer, booker, promoter, stage manager, security personnel, or box office manager
    • There is a paid ticket or coverage charge to attend most events and artists are paid fairly and do not play for free or solely for tips (except in the case of fundraisers or charitable events)
    • For live operators that are organized as a non-profit entity and that produces free events, the events must be produced and managed primarily by a paid staff as opposed to volunteers
    • Performances are marketed in printed or electronic publications, on websites, by mass email, or on social media
  • Movie theater operators must have the following characteristics:
    • At least one auditorium with a motion picture screen and a fixed audience seating
    • A projection booth with at least one projector
    • A paid ticket charge
    • Movies that are showing must be marketed in printed or electronic publications, on websites, by mass mail, or social media
  • Museums must have:
    • Indoor exhibition spaces that are subjected to pandemic related occupancy restrictions
    • At least one auditorium, theatre, or lecture hall with fixed audience seating and regular programming

Other Shuttered Venue Grant Eligibility Requirements

Grant recipients must meet the following additional eligibility requirements:

  • Must be operationally as of February 29, 2020
  • Have experienced a 25 percent or greater decline in revenues between April and December 2020 when compared to the same period in 2019
  • As of the date of the grant:
    • A live venue operator is or intends to resume organizing, promoting, producing, managing or hosting future live events
    • A movie theater operator is open or intends to reopen
    • A museum is open or intends to reopen
    • A talent representative is currently representing artists or entertainers
  • Cannot be publicly traded or owned by a publicly traded company
  • Cannot have received more than 10 percent of 2019 gross revenue from Federal funding
  • Cannot receive a Paycheck Protection Program (PPP) loan on or after December 27, 2020 (i.e. Round 2 PPP loan)
  • Cannot be a strip club or similar business
  • Cannot have more than two of the following characteristics
    • Own or operate venues in more than one country
    • Own or operate venues in more than 10 states
    • Have more than 500 employees as of February 29, 2020

Shuttered Venue Grant Application and Award Process

As of the drafting date of this article, the SBA has not started accepting applications for SVO Grants. They have outlined their intent to make funds available to different priority groups. For the first 60 days of the program, grants will only be issued to small entities, those with up to 50 employees, in the following order:

  • Priority (days 1 – 14): Small entities that had a 90 percent or greater revenue loss between April and December 2020 when compared to the same period in 2019
  • Second Priority (days 15 – 28): Small entities that had a 70 percent or greater revenue loss between April and December 2020 when compared to the same period in 2019
  • Third Priority (after day 28): Small entities that had a 25 percent or greater revenue loss between April and December 2020 when compared to the same period in 2019
  • Supplemental funding (after first and second priority): Recipients of first or second priority funding may receive a second award equal to 50 percent of their initial grant if they had a 70 percent or greater revenue loss in the first quarter of 2021 when compared to the same period in 2019

After 61 days, the grant program is available to larger entities who had a greater than 25 percent revenue loss between April and December 2020 when compared to the same period in 2019.

Permitted Uses of Shuttered Venue Grant Funds

As with most government programs, there are strings attached to the funds. SVO Grant funds must be used to cover the following costs incurred between March 1, 2020 and December 31, 2021 (or June 30, 2022 if supplemental funding is received):

  • Payroll Costs
  • Rent Payments
  • Utility Payments
  • Scheduled mortgage payments (not including principal prepayment) on loans originated prior to February 15, 2020
  • Scheduled debt payments on debt incurred in the ordinary course of business prior to February 15, 2020 (not including principal prepayments)
  • Worker protection
  • Payments to independent contractors (cannot exceed 100,000 dollars in annual compensation per contract)
  • Other ordinary and necessary business expenses, including maintenance costs
  • Administrative costs including fees, licensing, state and local tax fees
  • Operating leases in effect as of February 15, 2020
  • Insurance payments
  • Advertising, production transportation, and capital expenditures related to performing arts

The funds cannot be used to buy real estate, make investments or loans, make political contributions, or any other use that the SBA prohibits in future guidance.

Additional Considerations for Shuttered Venue Grant Funds

While the SBA is silent on it now, the legislative text requires some level of audit and oversight over the funds. This may mean that SVO Grant recipients will have to provide an accounting of the uses of the grant funds or submit to some sort of audit regiment. SVO Grant recipients should prepare for this by thoroughly documenting how they spend the funds.

The legislative text specifies that the grant proceeds are not taxable, and the associated expenses are fully deductible. This language was probably added to prevent the confusion surrounding taxability of PPP proceeds. Either way, this is great news!

The SBA should be issuing additional guidance on the SVO Grant program in the coming weeks. If you think you will be eligible for the SVO grant, I recommend that you keep an eye on the SBA website for additional guidance:

Additional Resources for Businesses Impacted by COVID-19

COVID-19 Tax and Business Financing Resources

 

 

 


About the Author

Jim is a Senior Manager in Keiter’s Tax Department. For the last 4 years, Jim has worked predominately with clients in the medical and dental industry where he provided tax planning and compliance services related to practice acquisitions and transitions. Jim strives to add value to his client relationships by being a trusted advisor. Keep up-to-date with Jim’s thought leadership on our blog.

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The information contained within this article is provided for informational purposes only and is current as of the date published. Online readers are advised not to act upon this information without seeking the service of a professional accountant, as this article is not a substitute for obtaining accounting, tax, or financial advice from a professional accountant.

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