On November 30, 2017, the New York City Council passed Int. 799-B (the Bill) to provide a tax credit against the New York City (NYC) Commercial Rent Tax (CRT) for small businesses with total income of $10 million or less. The Bill has been sent to NYC Mayor Bill de Blasio, who indicated that he will sign the measure in the coming weeks.

Generally, the NYC CRT is imposed on tenants that pay annual rent of at least $250,000 on commercial premises in certain locations in Manhattan (i.e., below 96th Street and above Murray Street). The effective CRT rate is 3.9% on base rent.

Credit provisions

If enacted, beginning July 1, 2018, and each year thereafter:

— Tenants with an NYC CRT base rent of under $500,000 and "total income" of less than $5 million would no longer have a CRT liability.

— Tenants with an NYC CRT rent of between $500,000 to $550,000 and total income between $5 million and $10 million would see a reduction in their NYC CRT liability. Under the Bill, such tenants would be able to claim a credit determined by multiplying the amount of CRT imposed on the tenant, minus any allowable credits or exemptions allowed by the income and rent factors.

— Tenants with either: (1) total income of over $10 million or (2) NYC CRT rent base of over $550,000 would not be affected by the law change and thus, would not be eligible for any credit under the Bill

The Bill would define "base rent", "income factor," "rent factor" and "total income." The term "base rent" would be defined as the base rent calculated without regard to any base rent reduction permitted by NYC Admin. Code Section 11-704(h)(2).

"Income factor" would equal:

— One for a tenant with a total income of not more than $5 million

— A fraction, the numerator of which is $10 million minus the total income amount, and a denominator of $5 million, for a tenant with total income of more than $5 million and up to $10 million

— Zero for a tenant with total income of more than $10 million

"Rent factor" would equal:

— One for a tenant with base rent less than $500,000

— A fraction, the numerator of which is $550,000, minus the amount of base rent, and the denominator of which is $50,000, for a tenant with base rent of at least $500,000 but not more than $550,000

"Total income" would be defined as the amount reported by a person for federal income tax purposes in the tax year immediately preceding the period for which the tenant is applying for the credit that is equal to:

— The gross receipts or sales of the person

— Minus any returns and allowances

— Minus the cost of goods

— Plus the amount of any dividends, interest, gross rents, gross royalties, capital gain net income, net gain or loss from the sale of business property, net farm profit or loss, ordinary income or loss from other partnerships, estates or trusts, or other income or loss.

The New York City Department of Finance (NYC DOF) would have the authority to promulgate rules necessary to implement these provisions.

Implications

If approved by the Mayor, the Bill would provide CRT relief for businesses with total income of $10 million or less per year, and that pay $550,000 or less in rent each year. The NYC DOF is aggressively pursuing delinquent CRT taxpayers, so all taxpayers leasing taxable premises in NYC should review their CRT obligations. Delinquent taxpayers may want to consider requesting relief under the NYC voluntary disclosure program to limit the look back period to three years and abate all penalties.

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