New York City Businesses May Begin Receiving Tax Credits against Commercial Rent Liabilities by Michael Hirsch, JD, LLM
Posted on August 02, 2018 by Michael Hirsch,
Beginning on July 1, certain small businesses renting commercial real estate in New York City may qualify for a tax credit that can potentially exempt them from paying any commercial rent tax (CRT) liabilities for the 2018 tax year. Business owners should meet with state and local tax (SALT) advisors to understand how they may qualify for the credit and what responsibilities they may still have to taxing authorities.
New York City imposes a 3.9 percent tax on the base rent that tenants pay for commercial real estate located south of 96th Street in Manhattan. Historically, the tax applied to all taxpayers with a minimum of $250,000 in annualized base rent, which includes the amount of lease payments, real estate taxes and other expenses paid to a landlord less any amount the tenant received from a subtenant. However, in December 2017, the mayor signed into law an exception for small businesses that meet the following criteria:
- Total business income reported on federal tax returns for the preceding year was less than $5 million, and
- Annual base rent for the current year is less than $500,000
A partial credit against the New York City CRT is available to taxpayers whose total income is between $5 million and $10 million and who have an annual base rent that does not exceed $550,000.
Despite the potential elimination of CRT tax liabilities, eligible taxpayers with at least $200,000 in annual base rent are still responsible for filing CRT returns. In addition, entities with common ownership must remain on the lookout for how the city will calculate the income of entities with common ownership for purposes of calculating the income threshold.
About the Author: Michael Hirsch, JD, LLM, is a senior manager of Tax Services with Berkowitz Pollack Brant’s state and local tax (SALT) practice, where he helps individuals and businesses to meet their corporate, state and local tax reporting requirements. He can be reached at the CPA firm’s Fort Lauderdale, Fla., office at (954) 712-7000, or via email at email@example.com.
Information contained in this article is subject to change based on further interpretation of tax laws and subsequent guidance issued by the Internal Revenue Service.