Testimony of The Real Estate Board of New York Before the New York City Council Finance Committee in Support Of Int. No. 799-A

Bill: Intro No 799-A
Subject: A Local Law to amend the administrative code of the city of New York, in relation to the commercial rent tax
Sponsors: Daniel R. Garodnick, Helen K. Rosenthal, Margaret S. Chin, Rosie Mendez, Corey D. Johnson, Ben Kallos, Mark Levine, Julissa Ferreras-Copeland, Robert E. Cornegy, Jr., Ydanis A. Rodriguez, CostaG. Constantinides, Peter A. Koo, Karen Koslowitz, Darlene Mealy, Deborah L. Rose

The Real Estate Board of New York (REBNY) a trade association with 17,000 members comprised of owners, builders, residential and commercial brokers and managers and other real estate professionals active in New York. 

REBNY supports Int. No. 799-A which would raise the threshold for the imposition of the Commercial Rent Tax to $499,999 per year and establish a phase-in of the tax from $500,000 to $550,000. 

The commercial rent tax (CRT) is imposed on the rent paid by tenants who occupy or use real property for commercial purposes in Manhattan south of 96th Street.  Certain tenants are currently exempt from the CRT.  The major exemption categories are:

  • Tenants with annual rents below $250,000
  • Tenants with rental periods of 14 days or less during the tax year
  • Tenants that are governmental or non-profit organizations
  • Tenants that use the premises for certain theatrical productions
  • Tenants located in the “World Trade Center Area”
  • Tenants occupying retail space in Lower Manhattan
  • Tenants eligible for the Commercial Revitalization Program

 

This bill would provide important tax relief for approximately for 2740 tax payers, or 35.6 percent of the commercial rent tax payers. 

Despite the large number of taxpayers to benefit, this change will result in a $35.4 million dollar reduction in the CRT, or approximately 4.7 percent of the taxes generated. 

Since 2004, the total tax liability has averaged annually a 4.9 percent increase.  In effect, the percentage of foregone revenue as a result of this proposal is the equivalent of a single year’s CRT increase.

The amount of revenue the city can collect from the real property tax for operating expenses is capped by the New York State Constitution at 2.5 percent of the taxable value of real estate.  The commercial rent tax was first implemented in 1963 as a way to raise revenue from the operation of real estate without violating the constitutional real property tax cap.

In the mid-1990s, significant changes were made to the CRT.  The most significant change was to eliminate the tax for rented commercial space north of 96th Street and the other four boroughs.  The administration also began a reduction of the effective rate of the tax from 6 percent to 3.9 percent with the goal of eliminating this unique tax in Manhattan as well.

We hope that Int. No. 799-A is the beginning of a prudent process to eliminate this tax entirely.

Contact:  Michael Slattery
Senior Vice President
REBNY
212-616-5207
mslattery@rebny.com