NYC Commercial-Rent Tax: Four reasons why it's time for reform


 By L. Blake Harvey, Founder, Lawrence Blake Group.

If you own a brick and mortar retail store in Manhattan, you're more than likely aware of the commercial-rent tax, and probably not a big fan. If you want to own a store, you’ve got to pay rent to your landlord. But in Manhattan from Chambers Street to 96th Street, you’ve got to pay tax on that rent - 3.9 percent. If your rent is $25,000 a month, you’ve got to pay nearly half of an extra month’s rent each year - $11,700 - to the city in tax.

New York City began implementing this tax in 1963, when more money was needed to pay for higher welfare benefits. The commercial-rent tax now brings in approximately 1.4 percent of the city's tax dollars. As retail store owners and office tenants continue to scramble to pay ever-increasing rents, the commercial-rent tax is a burden that small business owners no longer need. More so, small businesses in New York City are failing because they simply cannot keep up with rising costs. The money from this tax has soared from less than $500 million in 2000 to over $810 million today.

The good news? Manhattan City Council members Dan Garodnick and Helen Rosenthal have proposed a bill to eliminate the tax for businesses paying less than $500,000 in annual rent (the current cutoff is $250,000). Unlike with many of its taxes, the city can do this without state permission.

The most important part of this bill is that it provides an opportunity for our elected officials to follow through on their commitment to support local small Manhattan businesses, 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.

Council members Garodnick and Rosenthal have rounded up 33 of their colleagues (most of the council) to support the bill. And in its budget negotiations with the mayor, the council as a whole has suggested this reform. So the hold-up is de Blasio. Unfortunately, Mayor de Blasio has yet to give a hint that he will sign this bill into law.

Here are four reasons why it's time for commercial-rent tax reform:

  1. Taxes should be based on profits. But rent is an expense that comes before profit. Is it ethical to tax an expense? This adding on of costs hurts all businesses who want to rent space in Manhattan, including offices.
  2. Retail workers are losing their jobs. As storefronts empty, retail workers are likely the first to feel the blow. New York’s retail industry grew from 287,400 jobs in 2006 to 351,900 jobs in 2015, fueled by tourism and a growing number of residents. But retailers have made big cuts in the past two years and employ just 343,500 workers.
  3. Ending the epidemic of vacant retail shops: If Mayor de Blasio were to sign this new bill, he’d help over 3,400 smaller firms (AKA small businesses, the backbone of our local economy) - and make the difference, in many cases, between staying open or not.
  4. The change wouldn't hurt our state or city budget: Even though this new bill would help 40 percent of small businesses, the city would only lose about 6 percent of the money it gets from this tax, as larger chain stores and corporate tenants would still be on the hook.

Its time to pass this legislation that will help keep our city alive with rich street culture, world-renowned dining, and passionate small businesses!