Reduce the Commercial Rent Tax for small businesses in Manhattan
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Escalating costs are threatening the survival of many small businesses in Manhattan. The city’s Commercial Rent Tax (CRT), which only applies to businesses south of 96th Street in Manhattan, is exacerbating the problem.
Currently, commercial tenants are exempt from the tax if their annual base rent falls below $250,000. That may sound like it’s only aimed at large companies and major national chains, but that’s not true. The exemption threshold, which was implemented to shield small businesses, has not been updated in a number of years so more and more businesses are now subject to the tax.
In 2003, the city collected nearly $388 million from 5,858 businesses. By 2016, 7,705 businesses were on the hook for the tax, paying $779 million to the city. That’s double the revenue collected in 2003 -- and an increase of nearly 32 percent in the number of businesses captured. CRT revenue is forecast to continue on this upward trajectory, generating $816 million in 2017 and $848 million in 2018.
Unfortunately, many unprofitable businesses are paying the tax. The city’s Department of Finance used aggregate data to compare taxpayers’ net income in 2012 with their CRT tax liability in 2014. The data indicates that approximately 1,200 businesses with very low profit margins in 2012 — less than $100,000 each — earned a combined $14 million in net income but together paid $19 million in 2014 CRT tax. This is not sustainable.
Our city prides itself on the unique character of our neighborhood businesses, but action is urgently needed to help those that are struggling to survive. Raising the current CRT exemption threshold from $250,000 of annual base rent to $500,000 of annual base rent will carve out more small businesses and be of tremendous help to their bottom lines. Over time, the foregone revenue for the city ($50 million to $55 million per year) will be offset by new revenues generated by business expansion, job creation and economic growth.
Raising the CRT exemption is a smart investment that will be of tremendous benefit for the future of our great city. Mayor de Blasio and the New York City Council should include this proposal in the Fiscal Year 2018 city budget that they are now negotiating.
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