CITY LEADERS AND MANHATTAN BUSINESSES CALL FOR REFORM OF COMMERCIAL RENT TAX

This double tax exists in Manhattan below 96th Street and only one other location in the country -- the state of Florida.
 
Phased out in northern Manhattan, the Bronx, Brooklyn, Queens, and Staten Island in the 1990s.
 
Current $250,000 threshold has not been adjusted since 2001.

 

February 13, 2017 – Today, Manhattan Council Members joined colleagues, small business owners, and Manhattan leaders in support of legislation introduced by Council Members Dan Garodnick, Helen Rosenthal, Corey Johnson, and Margaret Chin, and Manhattan Borough President Gale Brewer, to bring long-overdue reform to the Commercial Rent Tax (CRT).

“New York City is nothing without its small neighborhood businesses,” said Council Member Dan Garodnick. “These stores are anchors of communities and engines of employment -- as policymakers, we must ensure that they can thrive. Our legislation will bring direct relief to thousands of New York City small business owners and lift the significant burden of this tax. We cannot let another fiscal year pass without enacting this long-overdue reform.”

The first bill, sponsored by Council Member Garodnick and Council Member Helen Rosenthal, would raise from $250,000 to $500,000 the minimum rent at which commercial premises become subject to the CRT.

A second bill, sponsored by Council Member Garodnick and Council Member Corey Johnson, would extend the CRT exemption to include the cost of space used for advertising theatrical works.

A third bill, sponsored by Council Member Johnson, with Manhattan Borough President Gale A. Brewer, would exempt certified supermarkets from the commercial rent tax, regardless of the amount of rent paid.

The final bill in this package, sponsored by Council Members Helen Rosenthal and Margaret Chin, would require the Department of Finance to issue an annual report on the commercial rent tax.

“The Commercial Rent Tax is a serious burden for small businesses in the heart of Manhattan.  Although it most directly impacts neighborhoods like mine on the Upper West Side, its negative consequences affect all New Yorkers, as the middle-class jobs that small businesses provide help the entire city prosper.  It is essential that we work to foster entrepreneurship in Manhattan, and I look forward to working with Council Member Garodnick and our allies to ensure that our small businesses are protected," said Council Member Helen Rosenthal.

“Our small businesses deserve relief from this antiquated and unfair commercial rent tax,” said Council Member Margaret S. Chin. “These businesses are not only an essential source of income for owners and their workers, they also provide vital services to our neighborhoods. Unfortunately, in part due to this burdensome tax, these businesses are being forced out – taking fresh and affordable food options, convenient services, and local character with them. With rents and other costs continuing to rise, we must act to protect these small businesses before more stores are forced to close their doors.”

 “Affordable supermarkets are lifelines for our communities,” said Council Member Corey Johnson. “As the cost of living continues to rise, these stores help ensure that our city can continue to accommodate the seniors and working class families that built our city into what it is today. The proposal that Borough President Gale Brewer and I have put forward would give our neighborhood supermarkets a fighting chance for survival. It’s good for business and it’s good for our communities. I’d like to thank Manhattan Borough President Gale Brewer for her incredible work on this, as well as Council Member Daniel Garodnick for leading this important charge on much-needed Commercial Rent Tax reform.”

“It makes no sense to punish businesses by adding a nearly 4 percent tax to their rent, just because they decided to open up shop between 96th Street and the Financial District,” said Manhattan Borough President Gale A. Brewer. “Councilmember Garodnick’s reform proposal is a good start, and I support it. I’m also sponsoring legislation with Councilmember Corey Johnson to exempt affordable supermarkets from this tax entirely, and in the long term we need to start thinking about a full repeal. This tax is an unfair relic of a bygone financial crisis, and it hurts the businesses we need here the most.”

Currently, CRT applies to all businesses paying over $250,000 a year in rent, and is a 3.9 percent surcharge on their base rent, paid to the city.  The proposal would remove that tax entirely for businesses paying less than $500,000 in rent, and provide a credit to businesses with rents between $500,000 and $550,000. Analyses have determined that approximately 4,000 businesses would benefit.

When CRT was first introduced in 1963, it only affected large businesses. Yet today’s real estate situation is a far cry from that of the 1960s. Numbers from the Independent Budget Office (IBO) show that the number of Manhattan businesses paying CRT increased by more than 62% from 2013 to 2015. At the same time, the average CRT bill actually decreased from $96,589 to $68,536. These two figures demonstrate a troubling trend: more and more businesses are paying just above $250,000 in rent annually.  Because the growth has been on the lower end, the businesses stuck with CRT bills are often independently owned stores and Manhattan mom-and-pops.

Our beloved neighborhood institutions are already being pinched by market forces. From 2012-2015 alone, commercial rents jumped 42%. Government should do all in its power to support our small businesses. Yet with CRT, government gets in the way, adds an additional costly burden, and takes businesses one step closer to shutting their doors for good.

CRT is unwise public policy. It is a double tax – landlords pay property taxes, and generally pass that cost on to their commercial tenants, who then they pay commercial rent tax on the very same space. It’s also unfair because it is not only inapplicable in any other borough, but it is also inconsistent even within Manhattan. Businesses on the north side of 96th Street haven’t been obligated to pay CRT since the 1990s, and certain areas in lower Manhattan received a post-9/11 exemption, which is still on the books to this day.  

"Our mom and pop shops need all the help they can get, but as a city we have been consistently overtaxing them," said Council Member Ben Kallos. "I am proud to join Council Members Garodnick and Rosenthal in supporting small business relief with Int. 799-A."

"As Chair of the Council’s Committee on Small Business, the success of the roughly 200,000 small businesses in New York City is of the utmost importance to me. Of all the businesses in New York City, 98 percent are small and provide the critical local jobs and services that make our city the vibrant place it is. As we continue to develop new policies that assist small business owners adapt to the ever-changing marketplace, we must use all the tools we can to make it easier for them to operate their businesses. We’ve managed to reduce business fines and fees and now – as I said two years ago when my colleagues introduced this bill – we should eliminate the commercial rent tax. This will bring direct financial relief to small businesses in Manhattan’s costliest commercial districts and highlight our commitment to the businesses that make our City great," said Councilmember Robert E. Cornegy, Jr., Small Business Committee Chair.

“New York City has the unfortunate distinction of being the only municipality in the United States where businesses in Manhattan are required to pay a 3.9 percent tax on their rent, resulting in a disincentive to create more jobs and expand business activity. This is only one of many barriers to small business growth imposed by the city. Since 2008, the number of businesses with fewer than five employees has grown nine percent, but there has been only a one percent increase in businesses with more than 50 employees. The commercial rent tax should be eliminated. Council member Garodnick’s legislation is a positive first step toward removing this tax on growth," said Kathryn Wylde, President & CEO of the Partnership for New York City.

“We are absolutely delighted to see steps being taken to help reduce the pressure and provide tax relief for our small merchants.  It has been said many times that small businesses -- such as all the hardworking mom-and-pops in Chinatown, Little Italy, and LES -- are the backbone of the economy.  We look forward to a quick passage of Intro 799-A,” said Wellington Z. Chen, Executive Director of the Chinatown Partnership.

"The Commercial Rent Tax is an unjust surcharge that poses significant financial burdens on beloved Manhattan restaurants. We commend Council Member Daniel Garodnick for walking-the-walk by proposing to exempt thousands of local businesses from this undue financial burden. We urge the city of New York to pass this legislation that supports our diverse culinary culture and preserves the character that small businesses bring to our neighborhoods," said Andrew Rigie, Executive Director of the NYC Hospitality Alliance.

"Restaurants across Manhattan have been crying out for legislation like this and we applaud Councilmember Garodnick for bringing this much needed issue to the forefront,"saidKevin Dugan, Regional Director for the NYS Restaurant Association. "With profit margins smaller than ever before, restaurants are forced to look for savings wherever they can find them. This legislation will allow many restaurants to escape the crippling commercial rent tax, allowing them to flourish and continue to act as an important economic engine for this city."           

"The commercial rent tax is a tax that punishes small businesses for paying too much in rent. If Manhattan wants to preserve the community of small businesses that is such an important part of its history and neighborhood vitality, the tax laws need to make it easier, not harder, for stores like Whisk to stay in business," said Natasha Amott, owner of Whisk NYC.

Additionally, the Finance Committee considered legislation sponsored by Council Member Garodnick and Council Member Johnson, which would include the cost of advertising space in the CRT exemption received by theaters across the five boroughs.

The theater community’s impact on the New York City economy is undeniable. During the 2014-2015 season, the Broadway industry contributed $12.57 billion to the economy of New York City and supported 89,000 jobs. In the most recent season, there were a record breaking 13.3 million admissions to Broadway shows alone.  

Theaters in New York City are currently exempt from paying CRT for the first 52 weeks of a show’s run. This brings much needed relief to these companies, who face a lot of financial uncertainty when producing new plays and musicals. Extending the 52 week CRT exemption to cover theater advertisements, including billboards, will create more certainty, eliminate a financial burden, and bring more clarity to the rules surrounding this industry's CRT exemption, making it a bit easier for arts to thrive in New York City.

“The Broadway League, the trade association for the commercial theatre industry in New York and across America, strongly supports Introductions 799 and 1107. While a small number of shows find Hamilton-like success, four of five Broadway productions never recoup their original capitalization even if they run for two or more years. These two bills will provide much-needed financial relief for New York’s small and mid-size businesses, important cultural institutions and other major job creators. The League applauds and thanks Councilmembers Garodnick and Johnson for their continued leadership and support for the live entertainment industry,” said Charlotte St. Martin, President of the Broadway League.

“It is crucial that New York City takes steps to remain competitive in an evolving marketplace, which is why the Alliance supports both Intro. 799-A and Intro. 1107-A, which will provide great help to the small and mid-sized businesses and the 40 Broadway theaters that make up the heart of Times Square,” said Tim Tompkins, President of the Times Square Alliance.

 “The Broadway industry employs 90,000 people and regularly employs approximately 10,000 union members.  A single show can create employment for hundreds of workers across more than a dozen unions and, if successful, provide ongoing employment for years.  Our members welcome the Council’s efforts to help live entertainment thrive in New York City and support Introductions 799 and 1107,” said Anthony DePaulo, International Vice President of the International Alliance of Theatrical Stage Employees, Moving Picture Technicians, Artists and Allied Crafts (“IATSE”).

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