A tenant came under examination for unfiled New York City Commercial Rent Tax (CRT) returns with an initial assessment of approximately $250,000. The tenant had leased an event venue in New York City over a four year period and then sub-leased the space to multiple customers for parties, weddings, photo shoots and other corporate events. When The Department of Finance sought to collect unpaid CRT on the tenant's lease payments, the tenant turned to Friedman LLP’s State and Local Tax (SALT) group for assistance.
According to the NYC Department of Finance, a taxpayer is allowed a deduction from rent with respect to subtenant rents if the subtenant(s) at issue sublease space for 14 days or more within the Commercial Rent Tax taxable year. Most taxpayers are not aware of this rule; nor are they aware that the days in question do not have to be consecutive in nature. With the SALT group’s expertise in this area, they diligently approached the audit— assisting the client to sort through and strategically organize thousands of the tenant’s daily subtenant rental records.
Ultimately, the SALT Group was able to provide the auditors with documentation demonstrating that the subtenants met the 14-day rule, prompting the auditors to agree that the tenant qualified for a rent deduction with respect to the subtenant lease payments. Furthermore, the SALT group was able to demonstrate that the rents flowing from the sub-leases far exceeded the actual amount of rent paid by our client—reducing the client's lease payments subject to the CRT to below zero. Accordingly, the City agreed that there was no tax due.