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New Rules for New York City Commercial Rent Tax

The New York City Commercial Rent tax (NYC CRT) has been applicable to many businesses in Manhattan since 1963. Now, a recent law, passed by the New York City Council on November 30, 2017, has made significant changes to the tax.

It is a tax imposed on tenants, lessees, sub-lessees, and concessionaires who occupy or use property for commercial activity between 96th Street and Murray Street in lower Manhattan and have an annualized base rent obligation of $250,000 or more. Exemptions include: the “World Trade Center Area,” governmental bodies, and nonprofit religious, charitable or educational organizations. All non-exempt tenants must file an annual return on or before June 20 covering the prior year, from June 1 to May 31, as well as three quarterly returns during the year.

The new law is intended to decrease the CRT burden on small businesses and the retail industry within Manhattan. To achieve this goal, NYC has established a threshold-based Small Business Tax Credit against its CRT. Small businesses with total income of $5 million or less, and which pay no more than $500,000 in rent per year, will receive a full CRT exemption. Taxpayers with incomes of $5 million or less and who pay between $500,000 to $550,000 per year in rent, and those taxpayers who have incomes between $5 million and $10 million and who pay less than $550,000 per year in rent receive a partial, sliding scale credit. Taxpayers who have incomes of more than $10 million do not receive any credit. The credit was available beginning July 1, 2018.

The law is estimated to reduce the NYC CRT liability for 2,700 small businesses, including 1,800 that will no longer pay the tax at all. The average annual tax relief for small business is anticipated to be between $11,300 and $13,000.

It is important to note that, although the change in the CRT discussed above has already been enacted, no rules or regulations have been adopted, or proposed, that would provide guidance as to how the provision will be interpreted by the New York City Department of Finance.