On June 1, 2018, significant NYC Commercial Rent Tax (“CRT”) changes took effect in an effort to provide tax relief for certain smaller businesses. Find out how these major changes to the CRT, which accounted for over $800 million in revenues in 2017 alone, may impact you.
The CRT is imposed at an effective rate of 3.9%, on the annualized base rent of commercial tenants located in Manhattan. Specially, this tax applies to tenants situated south of a hypothetical line running across 96th Street from east to west. Prior to the amendments, the CRT became effective when a tenant's gross annual rent reached $250,000 or more; however, in post amendment scenarios, that is not always the case. Note that tenants with annual gross rents of at least $200,000 are still required to file a CRT return.
Changes under the amended CRT Law:
- Businesses with annual rents under $500,000 and annual total incomes not exceeding $5,000,000 are entitled to a full tax credit.
- A partial credit is available for businesses with total annual incomes of $5,000,000 or less and annual rents between $500,000 and $550,000.
- Businesses with total annual incomes of between $5,000,000 and $10,000,000 that pay less than $550,000 in annual rent are entitled to a partial credit.
- Businesses with total annual incomes of more than $10,000,000 remain subject to the existing $250,000 rent threshold.
- Under the amended CRT Law, ”total income” is defined to include gross receipts, or sales of the business, minus returns and allowances and cost of goods sold. Generally, it includes most types of income and loss set forth on a business’s federal income tax return. For example, interest, gross rents, dividends, capital gains, net gain or loss from the sale of business property and ordinary income from partnerships.
- The higher rent threshold does not affect the requirement to file a CRT return when annual rent is at least $200,000. Moreover, the existing tax credit for businesses with annual rents between $250,000 and $300,000 remains in effect, notwithstanding the new CRT provisions.
Given the high rents for commercial tenants located within the CRT Zone, and the increasing competition of online businesses, the goal of the amendments to the CRT Law is to provide some relief to small businesses. Many of these businesses are family owned and cater to local community needs. It is estimated that more than 2,500 businesses will receive some respite from the CRT as a result of the new provisions.
If you have any questions regarding the NYC commercial rent tax changes, please contact Tom Corrie at (212) 842-7019, or, if you prefer, via email at firstname.lastname@example.org.