Foes of Commercial Rent Tax Reform Can't Have It Both Ways

By Andrew Rigie, NYC Hospitality Alliance

February 8, 2017

A recent Crain’s article noted that supporters of a bill to reduce Manhattan's commercial rent tax may be asked by City Council members how the city would make up revenue it would lose if the measure passed.

The legislation, which my organization supports, would exempt businesses with annual rent of less than $500,000 from paying the unjust tax. Businesses paying annual rents of less than $250,000 are already exempt from this 3.9% surcharge, as are those located in northern Manhattan, parts of lower Manhattan and all of the other boroughs.

If we are indeed asked how to replace the lost revenue, I will remind council members of the economic theory that they have used to support minimum-wage increases: that workers quickly pump their earnings back into the local economy by purchasing items like food and goods. This spending results in increased economic activity, forging a stronger and more equitable society that generates additional tax revenue.

Our elected officials should apply the same theory to eliminating the commercial rent tax on small businesses. The reduced tax revenue will go back into the pockets of local businesses that earned it—many of which are struggling financially—and they will then pump it right back into the local economy in the form of wages for workers, purchasing of goods and services, and business expansion, all of which generate revenue for the tax base.

Furthermore, the sky-high commercial rents, big minimum-wage increases and other pressures that are forcing restaurants and other businesses to increase prices will result in more sales tax for the city. All of this will collectively help offset the loss of revenue from reforming the commercial rent tax.

But a lot more is at stake here than reducing the commercial rent tax collection by an estimated $53 million, a figure that does not account for the economic growth it will spur. The fact is, the tax is inequitable. Since its introduction in the 1960s it has been eliminated throughout the five boroughs except for this one section of Manhattan. It is also unjust because it is really a double-tax, as businesses already pay a share of their landlord’s property tax in their rent payment or lease agreement. The tax’s financial burden compounds with the annual rent increases that are often built into commercial leases.

The bill to reform the commercial rent tax reform is an opportunity for our elected officials to follow through on their promises to support homegrown Manhattan business, and a way for council members for the four boroughs no longer affected by this unjust tax to show solidarity and support their fellow New Yorkers.

On Feb. 9, I will testify at the public hearing on behalf of aggrieved restaurant and bars owners in strong support of this proposal to exempt approximately 4,000 businesses from paying the commercial rent tax. I will also urge our elected representatives to support a broader exemption for thousands of more storefront businesses that pay more than $500,000 in rent and need financial relief. Let’s pass this legislation that will help keep our culinary and cocktail culture diverse and our Manhattan streetscape rich with character.

Andrew Rigie is the executive director of the New York City Hospitality Alliance, a trade group representing restaurants, night clubs and other businesses.

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