HABITAT

LEGAL/FINANCIAL

Commercial Rent Tax Relief Might Help Fill Vacant Retail Space

Manhattan

Tax Relief
Dec. 4, 2017

Many co-op and condo boards are struggling to rent their commercial spaces, a valuable asset that has often turned into a liability amid the rise in online shopping and the accompanying rise in brick-and-mortar store vacancies. Boards have reacted by lowering rents, leasing to once-undesirable tenants, or even entering into 99-year leases on their commercial space with investors, in return for a guaranteed stream of income. 

Boards struggling to rent their commercial space just got a jolt of good news from City Hall. Mayor Bill de Blasio and the city council have worked out a deal to exempt some 1,800 storefront shops and restaurants in Manhattan from the commercial rent tax, Crains reports. Doing business just got a little bit less expensive. 

The city council passed councilman Daniel Garodnick’s proposal to raise the threshold for paying the tax, which currently hits all businesses between 96th Street and Murray Street paying more than $250,000 a year in rent. Now, those with rents of up to $500,000 a year will receive complete exemption, while an estimated additional 900 brick-and-mortar establishments earning between $5 million and $10 million and/or paying between $500,000 and $550,000 in rent will receive a credit against the excise. 

"Anyone with eyes to see knows there is a crisis with our mom-and-pop stores," de Blasio said at a press conference in the City Hall rotunda. "We have to right a wrong here." 

The current commercial tax rate is 3.9 percent. The city introduced the tax in 1963 to plug budget gaps, but exempted businesses outside the most prosperous areas of Manhattan in the 1990s. The city estimates that the new exemptions and credits will shave $36.8 million from the city's revenues in Fiscal Year 2019. It will mark the first breath of relief for business owners since 2001. 

Garodnick, who first proposed his bill in 2015, noted that the number of businesses hitting the $250,000 threshold has exploded over the last 16 years, adding, "Every year of inaction by the city has basically been a tax hike on small businesses who were never meant to be affected by this tax in the first place.” 

Good news for small businesses might translate into good news for co-op and condo boards.

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