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September062022

More About CRT—Small Business Tax Credit & Voluntary Disclosure

Sarah S. Kim, J.D., LL.M.

09.06.22 | SALT Chat

In my previous blog, I talked about the basics of the New York City Commercial Rent Tax (CRT). In today’s article, I want to talk about two issues that were brought up by some of our clients in the past year.

Small business tax credit

Beginning June 1, 2018, a tenant with (i) a total income of less than $10 million and (ii) an annual “base rent before rent reduction” of at least $250,000 and less than $550,000 may claim a small business tax credit. “Total income” means the income reported on the taxpayer’s federal income tax return in the tax year immediately preceding the period for which the taxpayer is applying for the credit (i.e., the income reported on the federal 2021 return for a calendar year taxpayer applying for the 2022/2023 CRT credit). “Base rent before rent deduction” is the amount of rent and other payments made to the landlord under the lease agreement, less any amounts received from subtenants and other exemptions.

The credit effectively exempts taxpayers with (i) a total income of $5 million or less and (ii) an annual base rent before rent reduction of $500,000 or less. A phase out applies for taxpayers with a total income of more than $5 million but less than $10 million and annual base rent before rent reduction of more than $500,000 but less than $550,000.

A taxpayer who occupied premises only for a partial year and whose annual base rent payment was well below $250,000 is not eligible for the credit. The same taxpayer, however, may still be subject to CRT if their annualized rent payment was over $250,000.

Disclosure period for voluntary disclosure program

A taxpayer can bring their past due returns into compliance through a New York City voluntary disclosure and compliance program. For more information about state voluntary disclosure programs in general, click here.

The New York City Department of Finance generally provides a limited lookback period of three years. So if a taxpayer is eligible for a limited lookback, the Department would require a taxpayer to file the three prior annual tax returns plus any past due quarterly returns for the current tax year. The Department’s voluntary disclosure unit advises taxpayers to handle noncompliance by simply filing late returns (not through the Department’s voluntary disclosure program) if the delinquent period is less than a year and only involves the filing of quarterly returns. The CRT tax year runs from June 1st through May 31st. The first quarter CRT return and payment for tax year 2022/2023 are due Tuesday, September 20th.

If you have any questions about the New York City Commercial Rent Tax, you can reach me at 646.346.6467 | skim@berdonllp.com or contact your Berdon Advisor.

Sarah S. Kim is a Senior Tax Manager in Berdon LLP’s State and Local Tax Group with over 10 years of professional experience. Sarah advises Fortune 500 and middle market businesses across an array of industries. She has experience with various types of taxes, including corporate income and franchise tax, sales and use tax, personal income tax, unincorporated business tax, commercial rent tax, and real estate transfer tax.

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