Commercial Rent Tax OP-ED in NY Daily News

By Andrew Rigie & Jessica Walker

October 6, 2016

As business association executives, we constantly hear from our members who run small businesses about the financial burdens posed by escalating rents in New York City.

We also hear from elected officials, who ask us how they can help save the struggling and vanishing neighborhood shops and world-renowned restaurants that are roots of our communities.

This is not just about places with famous names; it’s about the fabric of our neighborhoods.

Rent itself is difficult to control in a high-cost city where space is so precious. But in Manhattan below 96th St., there’s a way to significantly reduce the costs on thousands of local businesses. So if government really wants to help, they don’t need to ask what to do; they need to pass legislation that’s been sitting in the City Council since last year.

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Then, Mayor de Blasio needs to sign it into law to dramatically scale back if not eliminate the regressive commercial rent tax (CRT) on thousands of small Manhattan businesses.

The CRT was enacted by a cash-strapped city in 1963. As fiscal conditions improved, the tax has been eliminated over time for more and more neighborhoods of the city, including throughout the outer boroughs and northern Manhattan.

Today all that is left of the tax is imposed on commercial tenants south of 96th St. in Manhattan (except for areas near the World Trade Center). Most businesses that are subject to this levy pay a tax rate of 3.9% on top of their already expensive base rent.

Tenants are exempt from the tax if their annual base rent falls below $250,000. That may sound like it’s only aimed at large companies and major national chains. Not so; because rents jumped 42% in Manhattan between 2012 and 2015, more and more businesses are now subject to the tax.

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In 2003, the city collected nearly $388 million from 5,858 businesses. By 2015, 7,354 businesses were on the hook for the tax, paying $720 million to the city. That’s 86% more than in 2003.

The average CRT liability per taxpayer also increased in that time period, growing from approximately $80,000 to $100,000. That’s on top of the growing number of well-intended yet expensive government mandates such as increased wages, paid sick leave and health care requirements.

Unfortunately, many unprofitable businesses are paying the tax. The city’s Department of Finance used aggregate data to compare taxpayers’ net income in 2012 with their CRT tax liability in 2014. They found that approximately 1,200 businesses with very low profit margins in 2012 — less than $100,000 each — earned a combined $14 million in net income but together paid $19 million in 2014 CRT tax . This disparity was particularly pronounced among the retail businesses that elected officials are trying to save.

Legislation by Councilman Dan Garodnick would raise the threshold at which businesses are on the hook for the tax up from $250,000 in annual rent to $500,000, exempting more businesses. Others want to raise the threshold even higher or target relief to retailers and restaurants. Even better, Mayor de Blasio could lay out a multiyear plan in his next budget that would phase this unfair tax out altogether.

At a recent bill-signing ceremony, the mayor said that “Our small businesses are not only engines of our economy — they are an essential part of our city’s character.” We hope that he will solidify that sentiment with action by reducing the CRT burden.

Now is the time because the city is flush with tax surpluses and reserves. Over time, whatever revenue the city loses will be offset by new tax revenue triggered by business expansion, a broader tax base and greater economic activity and opportunity.

Not only will businesses be saved. Neighborhoods will be, too.

Rigie is executive director of the New York City Hospitality Alliance. Walker is president and CEO of the Manhattan Chamber of Commerce.

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