Can the city come up with $52 million to ease Manhattan's commercial rent tax?
Natasha Amott, the owner of a cookware store in the Flatiron District called Whisk, denounced her $15,327 annual commercial rent tax bill as downright detrimental. The cost makes it difficult for Whisk to pay staff the wages – and raises – that reduce the rapid turnover often faced by small businesses, she said. And Whisk was socked with several years of commercial rent tax dues at once because the real estate firm Amott hired never informed her of Whisk’s obligation to pay the levy.
“Businesses consistently report this lack of awareness of the CRT. When the city finally brought it to my accountant’s attention, I had to pay the CRT for three years, and with interest,” Amott noted in testimony she submitted to the City Council for a hearing on commercial rent tax reforms in February. “The thinkers behind the tax never envisioned that it would add to the difficulties small businesses are facing to stay open.”
Many of today’s legislative thinkers – 35 to be exact – have signed onto a bill introduced by New York City Councilman Daniel Garodnick that would shield more small businesses from the commercial rent tax, a regulatory oddity that is only applied in a portion of Manhattan. Garodnick’s measure would raise the annual rent threshold at which businesses are effectively taxed 3.9 percent of their annual lease payments by the city. But despite widespread support from his colleagues, Garodnick’s bill appears poised to compete against several other funding priorities this budget season.
While testifying at the February City Council hearing, officials from Mayor Bill de Blasio’s administration commended Garodnick’s bill. But they said the measure must be taken up as part of larger budget discussions because it would drain the city of about $52 million in revenue. That stance did not sit well with Jessica Walker, president and CEO of the Manhattan Chamber of Commerce, who is working with the Real Estate Board of New York, the Partnership for New York City and several local business improvement districts and chambers of commerce to implement Garodnick’s tax relief bill.
Walker said it was unfair for the administration to suggest that those who support the bill must come up with $52 million in savings. “This is not a huge sum of money in the context of the city budget,” Walker said of the mayor’s preliminary $84.7 billion budget proposal. “There are many other things that are in the budget that are very, very important, and they are not asked to come up with a plan for making it revenue neutral.”
Commercial rent tax relief is the Manhattan Chamber of Commerce’s top priority this year, Walker said. The commercial rent tax dates back to 1963, when the city was approaching the state constitution’s limit on how much revenue it could extract from property taxes. As a remedy, it imposed a tax on rents, which are linked to the market value of commercial spaces. Commercial spaces in the outer boroughs and north of 96th Street in Manhattan were exempted from the tax in 1995. After the 9/11 terrorist attacks, the tax was waived for areas near the World Trade Center beginning in 2005.
“This is not a huge sum of money. There are many other things that are in the budget that are very, very important, and they are not asked to come up with a plan for making it revenue neutral.”
Businesses complain of other regulatory peculiarities with the tax. New York City is the only large government known to charge a tax on rent outside of Florida, according to the Independent Budget Office. The tax essentially makes tenants pay twice: Most landlords pass on at least part of property tax increases to businesses through higher rents, and these tenants are then asked to pay a tax on those rents. As commercial rents have spiked in recent years, some point to the tax as contributing to supermarkets and independent shops getting priced out of lower Manhattan. Former Mayor Rudy Giuliani proposed eliminating the tax twice by phasing it out over multiple years, but was unsuccessful.
Years later, lawmakers are again pushing for reforms. One measure would exempt billboards advertising theatrical shows from the surcharge for 52 weeks; another would waive the levy for affordable supermarkets; and a third would require more reporting on revenues collected under the tax.
Under Garodnick’s bill, an exemption currently offered to businesses paying less than $250,000 in annual rent would be expanded to include companies paying up to $500,000 each year. The tax would then be assessed on a sliding scale for firms paying between $500,000 and $550,000 in annual rent.
Garodnick described the measure as a way to chip away at an unfair tax, which if fully repealed, would force the city to absorb $780 million in lost revenue. He said he would discuss the bill with other members of the City Council’s budget negotiating team and suggest ways to make up the $52 million. But Garodnick declined to share specific savings strategies with City & State. Julissa Ferreras-Copeland, the chairwoman of the City Council Finance Committee, is a co-sponsor of the bill, but City Council Speaker Melissa Mark-Viverito has not yet taken a position on the measure, according to her spokeswoman.
“Ultimately this will be a question of budgetary priority,” Garodnick said. “I also have asked the mayor to identify savings in the city budget, which if done seriously, would more than compensate for the loss of $52 million.”
What is the Commercial Rent Tax?