Earlier this month, the 2014-2015 NYS budget passed with an extension of all Lower Manhattan incentive programs. Programs that had lapsed were extended retroactively. Please see below for revised expiration dates and details on qualifying for retroactive benefits. Please note, that these are not new programs. The legislation merely extended programs that were previously in existence.
Commercial Revitalization Program
The Commercial Revitalization Program (CRP) was developed with the goal of rehabilitating older buildings in Lower Manhattan. The NYC Department of Finance provides benefits under CRP through two tax incentives: a $2.50 per square foot real estate tax abatement and a Commercial Rent Tax (CRT) special reduction. These benefits apply to non-residential or mixed-use premises located in designated abatement zones. Applicants are also required to make certain minimum expenditures to improve the eligible premises.
Real Estate Tax Abatement
Under the CRP, the Department of Finance offers a $2.50 per square foot real estate tax abatement for up to 5 years for commercial tenants that locate in non-residential pre-1975 buildings located south of Murray Street and Frankfort Street, west of South Street and east of West Street in Lower Manhattan. Tenants must make improvements to their space and leases must commence prior to March 31, 2016.
- Leases may be 3, 5, or 10 years, depending on the number of employees. Firms with less than 125 employees may have 3 to 5 year leases (or longer), depending on the length of the lease. Firms employing over 125 people must have 10 year leases, and will receive the benefit for 5 years.
- Tenants receive the benefit as a pass-through from their landlord and must jointly apply for the tax abatement with their landlord.
- Expenditures required are based on the number of employees and length of the lease, and range between $5 per square foot and $35 per square foot. Expenditures must be documented and submitted to the Department of Finance.
- Tenants must submit their application within 180 days of the lease commencement.
CRT Special Reduction
The CRT portion of the CRP offers an exemption on the commercial rent tax, a tax paid by retailers and commercial tenants with an annual rent of $250,000 and above per year.
The tenant must be located in a non-residential building south of Canal Street, and leases must commence prior to June 30, 2015. The extension is deemed effective after June 30, 2013. In addition, an application is due within 180 days of rent commencement or sixty days from the date the act became law, whichever is later.
Industrial & Commercial Abatement Program (ICAP)
ICAP, administered through the NYC Department of Finance, provides a partial exemption from or abatement of property taxes for up to 25 years for eligible industrial and commercial buildings south of Murray Street that are built, modernized, rehabilitated, expanded, or otherwise physically improved. Eligibility for ICAP benefits in Lower Manhattan may also allow a participant to receive reduced energy rates through the Lower Manhattan Energy Program (LMEP) (See below).
- Developers of commercial projects must make expenditures of at least 30% of the assessed value of the project in the year the building permit is issued.
- New commercial construction receives a full exemption on improvements for 11 years, followed by a 4-year exemption period with benefits declining by 20% per year. Commercial renovation projects are eligible in Lower Manhattan and receive a full exemption on the increase in assessed value due to the improvements for 8 years, followed by a 4-year exemption period with benefits declining by 20% per year.
- For new commercial construction, where retail makes up to 10% of the total property, the project is eligible for the standard 25-year benefit schedule and retail above 10% receives a modified 15-year benefit schedule. For renovation projects, when retail makes up more than 5% of the total property, the retail portion of the building is ineligible for the benefit.
- Two applications are required. The preliminary application must be filed before building permits are issued (and prior to 2/28/17). The final application must be filed no later than one year after the effective date of eligibility, which is the date of the first building permit that allowed construction.
Lower Manhattan Energy Program (LMEP)
The LMEP, administered by the NYC Department of Small Business Services (SBS), was extended from June 30, 2013 to June 30, 2015. The extension is deemed effective after June 30, 2013. The program can reduce energy costs by up to 45% for 12 years for eligible buildings and commercial tenants in those buildings.
- A building located south of Murray and Frankfort Streets is eligible for LMEP if renovations in excess of 30% of the property's assessed value have been made, and the building has been approved by the Industrial & Commercial Abatement Program (ICAP) or the NYC Industrial Development Agency (IDA).
- City and state-owned buildings that have been approved are also eligible.
- The building owner or developer must submit an application to SBS before a building permit is issued for the construction or renovation.
Tenants do not need to submit an application for LMEP. Tenants located in an eligible building should receive an energy credit from their landlord.
When negotiating a lease, tenants should confirm the status of the building either with the building manager or SBS.
Lower Manhattan Relocation Employment Assistance Program (LM-REAP)
There are two portions of the LM-REAP. If you are new to NYC, you qualify as an Eligible Business (EB). If you already have a Manhattan presence, but are moving employees from outside of NYC to Lower Manhattan, you qualify as a Special Eligible Business (SEB).
The LM-REAP-EB and SEB programs, administered by the NYC Department of Finance, provide a $3,000 tax credit per employee, per year to businesses that relocate to Lower Manhattan from outside the 5 boroughs. The credit may be taken against the NYC General Corporation Tax, the Banking Corporation Tax, the Unincorporated Business Tax, and the Utility Tax.
- Companies must have been in business for at least 24 months before relocating or expanding to Lower Manhattan.
- EB businesses must move at least one employee to the Lower Manhattan location from offices outside NYC. SEB businesses must increase their payroll in NYC by 25% or 250 employees.
- Tenants can either sign a lease of at least 3-years and spend at least $25 per square foot on improving their space or they must spend at least 50% of the assessed value of the property for commercial property (or 25% of the assessed value for an industrial property) and locate to a property: a) eligible for ICIP; b) leased from the NYC Industrial Development Agency; c) owned by NYC; or d) leased from the Port Authority or NYS Urban Development Corporation.
NYS Sales Tax Exemption for Build-Out
This program, administered by the NYS Department of Taxation and Finance, provides an exemption from the sales tax on goods purchased for the build-out of office space in Lower Manhattan south of Murray Street.
- Lease terms must be at least 10 years and only direct leases are eligible (no subleases).
- Businesses that locate in the World Trade Center, 7 World Trade, The World Financial Center, or Battery Park City, can receive an exemption on sales tax for all goods purchased, including personal property such as furniture and equipment. Lease terms must commence prior to December 1, 2018.
- Businesses located in all other areas south of Murray Street can receive an exemption only on those goods purchased for a build-out that will result in permanent capital improvements to the space. Personal property, furniture, and other non-permanent goods do not qualify. Businesses must have leases that commence prior to December 1, 2016. The extension is deemed effective after August 31, 2013 and credits or refunds can be made for taxes paid if the taxpayer did not receive and exemption for eligible purchases made between September 1, 2013 and the date the act became a law.
If you have any questions about this article, please contact Tom Corrie at TCorrie@friedmanllp.com.