New York City Council Limits Commercial Rent Tax

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By John Herzfeld

Relief from a New York City commercial rent tax would be extended to more businesses under an administrative code amendment passed Nov. 30 by the city council.

The amendment ( Intro. No. 799-B) would establish a small business credit against the city’s commercial rent tax for taxpayers with annual incomes less than $5 million who pay less than $500,000 a year in rent. Mayor Bill de Blasio (D) said he plans to sign the bill.

“Small businesses are the lifeblood of this city,” he said in a statement after the council’s action. “That’s why we designed the bill to ensure that they’re the ones we’re helping.”

A sliding scale would also offer partial relief to taxpayers with incomes of $5 million or less who pay between $500,000 and $550,000 a year in rent, or taxpayers with incomes between $5 million and $10 million who pay less than $550,000 a year in rent.

Taxpayers with incomes greater than $10 million wouldn’t receive any credit. The measure would take effect next July.

The vote by the overwhelmingly Democratic-controlled council broke a 30-month logjam over the terms of the relief, which was a big lobbying goal of city business and real estate associations.

Current Threshold

The commercial rent tax is imposed on businesses located in Manhattan south of 96th Street, which has the city’s densest commercial concentration. It applies to businesses with base rents of $250,000 or more per year, with a partial credit for rents between $250,000 and $300,000 per year.

“Manhattan’s small business owners have had to make too many sacrifices just to keep their livelihoods open,” Council Speaker Melissa Mark-Viverito (D) said in a statement. The measure, she said, “would alleviate the financial burden of having to pay a rent tax on top of having to pay the rent itself for the borough’s businesses.”

The commercial rent tax hasn’t been updated in more than 15 years, “despite vast changes in the Manhattan real estate market and economic landscape,” she said.

“With storefront vacancies soaring and retail in crisis, the city council is today taking a crucial step to support Manhattan’s small businesses,” said Council Member Daniel Garodnick (D), who sponsored the bill. He called it “a lifeline to businesses that make our neighborhoods special and provide jobs to New Yorkers from all five boroughs.”

Industry Support

The effective tax rate is 3.9 percent, after a 35 percent base-rent reduction was applied to a 6 percent tax rate in the mid-1990s, according to the Real Estate Board of New York, an industry association.

The bill “would provide important tax relief for approximately 2,740 taxpayers, or 35.6 percent of the commercial rent taxpayers,” the real estate group said in hearing testimony. It would bring a $35.4 million reduction, or approximately 4.7 percent of the total of commercial rent taxes generated.

The real estate group said its members hope that the new bill “is the beginning of a prudent process to eliminate this tax entirely.”

To contact the reporter on this story: John Herzfeld in New York at jherzfeld@bloomberglaw.com

To contact the editor responsible for this story: Cheryl Saenz at csaenz@bloombergtax.com

For More Information

Legislative information on the bill is at http://src.bna.com/uBZ.

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