One of the most overlooked and onerous local taxes exists in the heart of New York City. The New York City commercial rent tax (CRT) was first implemented in 1963 to increase tax revenue by shifting more of the tax burden to businesses operating in New York City, instead of raising sales taxes on residence.
The CRT is imposed on tenants occupying property for commercial activities in Manhattan below 96th Street who pay more than $250,000 in annual base rent. The tax is imposed on the annual base rent at the rate of 6%, after a reduction of 35% of the total rental payments. This results in an effective tax rate of 3.9%. Tenants with annual taxable rents between $250,000 and $300,000 are eligible for a sliding-scale credit that partially offsets the tax.
There are several exceptions to the CRT:
- for short term rentals of 14 days or less during the year,
- for tenants using at least 75% of the floor space to rent to others for residential purposes,
- for tenants using the property for theatrical productions (for the first 52 weeks after production begins), and
- for non-profit religious, charitable, educational, or governmental organizations.
Although the CRT applies to property south of 96th Street, there are some areas exempt from the tax. The area surrounding the World Trade Center and properties in the Commercial Revitalization Abatement Zone are exempt from the imposition of the tax.
What Is Included in the Tax Calculation?
The calculation of what is considered “base rent” is not as simple as it would seem. In addition to the base annual rent, some commercial leases require additional rent payments attributable to real property tax on the building. These additional amounts are considered to be additional rent and includible in the tax calculation. If a lease specifies a dollar amount for a work allowance that the landlord is required to provide, the tenant’s payment of this obligation on behalf of the landlord would generally be considered additional rent as well, as would any other payments made on behalf of the landlord that are typically the obligation of the landlord. Billboards are also included in the scope of the tax. Any improvements, repairs, or maintenance paid by the tenant are not includible in the tax calculation.
Filing Deadlines
Annual returns (tax year ending May 31) are due on June 20 each year. Every tenant who is subject to tax for a period must also file a quarterly return due on September 20, December 20, and March 20 each year.
Every tenant must file an annual return covering the prior year, from June 1 to May 31, unless both of the following are true:
- The annual gross rent paid for any taxable premises (before deductions and reductions) is $200,000 or less; and
- The rent received from any subtenant of the premises is $200,000 or less.
As the New York City Department of Finance is more aggressively pursuing noncompliant taxpayers, it is even more important now to review your local tax compliance situation. Our Ryan tax professionals can answer all your questions and assist in determining your legal liability.
TECHNICAL INFORMATION CONTACTS:
Tony Gulotta
Principal
Ryan
212.847.0124
tony.gulotta@ryan.com
Argi O’Leary
Principal
Ryan
212.871.3901
argi.oleary@ryan.com
The material presented in this communication is intended to provide general information only and should solely be seen as broad guidance and not directed to the particular facts or circumstances of any individual who may read this publication. No liability is accepted for acts or omissions taken in reliance upon the content of this piece. Before taking (or not taking) any action, readers should seek professional advice specific to their situation from Ryan, LLC or other tax professionals. For additional information about this topic, please contact us at info@ryan.com.