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Changes to NYC Commercial Rent Tax – Potential Benefit to Small Businesses

State and Local Tax Team
12.01.2017 | Client Alert

The New York City Council has passed a bill raising the rent threshold subject to New York City commercial rent tax from $250,000 to $500,000 for qualifying businesses. It is anticipated that Mayor Bill de Blasio will sign the bill over the next few weeks, with an effective date of July 1, 2018. The new threshold would relieve approximately 2,000 small businesses in Manhattan from paying the commercial rent tax. There has been much discussion over the last few years regarding the commercial rent tax in New York City, and many believe that the tax negatively impacted small business owners.

Currently, Manhattan tenants who lease property for commercial purposes south of 96th Street are subject to this tax if their annualized gross rent is $250,000 or more. Businesses located in the other four boroughs of New York City are not subject to the tax.

There are certain exemptions in place for not-for-profit organizations, property located in the World Trade Center area, and those eligible for the Lower Manhattan Commercial Revitalization Program. Additionally, the new bill also includes a stipulation — in order to qualify for the full tax break, businesses that pay annual rents below $500,000 must also earn gross revenue of less than $5 million per year. A sliding scale would also offer partial relief to taxpayers with revenues of $5 million or less who pay between $500,000 and $550,000 per year in rent, or taxpayers with revenues between $5 million and $10 million who pay less than $550,000 per year in rent. Likewise, those businesses with an annual revenue of $10 million or more will be liable for the tax in full if they meet the current threshold of $250,000 as discussed above.

The City currently offers a credit for businesses who pay annualized rent between $250,000 and $300,000, which reduces the total commercial rent tax due. That credit will remain in place for all businesses subject to the tax, regardless of total revenue earned.

If you believe you are eligible, please contact your Berdon advisor.