New York Lawmakers Propose 3-Year Commercial Rent Tax Suspension

This past Thursday, 3 NYC lawmakers – City Council members Keith Powers and Gale Brewer, and New York Borough President Mark Levine – came together to propose a piece of legislation aiming to secure a temporary suspension of the commercial rent tax in New York.  

What is The Commercial Rent Tax? 

The commercial rent tax was first imposed in 1963 in an effort to generate more revenue for New York City. Until 2017, the 3.9% tax on base rent was imposed on “any tenants who occupy or use property for commercial activity between 96^th St. and Murray St. in lower New York with an annualized base rent of $250,000 or more,” according to the CPA Journal. In 2015, a new piece of legislation was introduced by City Council member Dan Garodnick to limit the number of businesses who would need to pay the tax. Garodnick proposed to “change the threshold so that tenants who make $5 million or less in annual income, and who pay less than $500,000 in rent, are free from the tax,” according to the Real Deal. Additionally, Garodnick’s legislation included a stipulation for those tenants who didn’t meet those parameters, under which “commercial tenants who make $5 million or less and pay between $500,000 and $550,00 in annual rent, as well as businesses who bring in between $5 million and $10 million and pay less than $550,000 per year, could receive a partial, sliding credit,” says the Real Deal. The former change in threshold was estimated to financially aid 2,000 businesses, while the latter would help an additional 900.  

While this legislation was successfully passed, despite strong dissent at the time, “efforts to do away with the unpopular tax entirely have failed, largely because mayoral administrations did not want to give up the hundreds of millions of dollars in revenue it produces. [For example] in fiscal 2015 it yielded $720 million, or 0.9 percent of the city budget,” according to the Real Deal.  

So, What Has Been Proposed? 

Although the lack of mayoral support is well known, City Council member Keith Powers has remained persistent in passing legislation to give small businesses the break they deserve. In 2020, Powers proposed an initial bill, alone, that aimed to temporarily repeal the commercial rent tax due to the Covid-19 state of emergency. This bill ultimately did not go anywhere. But now, Powers has found additional backing. 

Last week, Powers, along with City Council member Gale Brewer and New York Borough President Mark Levine  announced a new piece of legislation “to suspend the commercial rent tax in full for 3 years.” The legislation is co-sponsored by Council Members Kalman Yeger, Gale Brewer, Carlina Rivera, Julie Menin, Erik Bottcher, Shaun Abreu, Chris Marte, and Diana Ayala. In its official press release, the Council cites that “as reported by THE CITY, approximately 26,000 city businesses have shuttered since the outset of the pandemic, and the city has only regained 71 percent of jobs since 2020. In comparison, the rest of the nation has recovered more than 90 percent of job losses. With reports estimating that a return to a pre-pandemic economy will not occur until 2025 and most federal aid sources depleted, this legislation will provide assistance to businesses during the recovery period.”  

Here are individual statements from Powers, Brewer, and Levine regarding why this legislation should be passed:  

“The pandemic devastated our city’s small businesses,” said City Council Majority Leader Keith Powers. “Relieving the commercial rent tax puts money back into the pockets of struggling business owners. Our city’s recovery is contingent on New York—we need to be doing everything possible to support these establishments as owners work tirelessly to pay bills, bring back customers, and keep their doors open.”  

“The sharp decline in office workers and tourists has devastated businesses south of 96^th Street, so suspending the Commercial Rent Tax will give them some relief as they attempt to keep their doors open,” said New York Borough President Mark Levine. “A strong recovery for our entire borough requires creative solutions to support small businesses and their employees.” 

“Lower-wage industries and small businesses have been the hardest hit during the COVID-19 pandemic, and face a difficult recovery. Projections from the Independent Budget Office indicate that the Leisure & Hospitality and Retail Trade industries are not expected to return to pre-pandemic levels until the end of the decade,” said Council Member Gale A. Brewer. “It is critical the City support vulnerable businesses with sensible legislation that aids in their survival. Reducing the commercial rent tax burden in for business will benefit many and ensure a stronger recovery.” 

The legislation has also drawn strong support from other leading city organizations, including the New York Chamber of Commerce and the New York City Hospitality Alliance, whose Executive Director Andrew Rigie commented that: “the Commercial Rent Tax is an unjust and discriminatory fee that applies only to some businesses in New York where rents are often the highest, but not elsewhere in the city, and the tax is calculated on rent not income, which makes no sense at all. If the city of New York wants to stop punishing our restaurants and retail shops for paying high rents and provide relief to these businesses that have been hit extra hard by the pandemic due to the loss of office workers and tourists, they need to enact Council Member Powers’ important Commercial Rent Tax reform bill now.”  

What Now?  

Now, we wait. The bill was introduced on June 2^nd, and was promptly referred to the Committee on Finance by the Council.  

For more updates on this pending legislation, and others affecting small businesses, check back on the KI Legal blog as we stay up-to-date on all future developments.  

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