Manhattan Small Businesses Get Tax Break Under Council Bill

MANHATTAN, NY — About 2,700 small businesses in Manhattan will get a tax cut next year under a bill the City Council approved Thursday. With support from Mayor Bill de Blasio, the Council passed the first changes to the city's commercial rent tax in 16 years, ensuring about 1,800 shops no longer have to pay the tax.

The move, set to take effect in July 2018, aims to lift a financial burden for mom-and-pop shops in Manhattan, where the cost of doing business is generally higher than other parts of the city. The commercial rent tax only applies to businesses in the borough between Murray Street and 96th Street.

"For the first time since 2001, we are reforming the unfair, commercial rent tax," City Councilman Dan Garodnick (D-Stuyvesant Town), who sponsored the bill, said in a statement. "By doing so, we are throwing a lifeline to businesses that make our neighborhoods special and provide jobs to New Yorkers from all five boroughs."

Businesses in the commercial rent tax zone pay an effective 3.9 percent tax on their rent if it costs more than a certain amount each year. The tax was first imposed in the 1960s but repealed in all other parts of the city years ago.

Under the new law, businesses with up to $5 million in annual income will only be taxed if they pay at least $500,000 in rent each year, the mayor's office said. The previous threshold was $250,000 in annual rent.

Shops taking in $5 million to $10 million or paying $500,000 to $550,000 in rent each year will also get a discount on a "sliding scale," the mayor's office said.

The average business will see a tax cut between $11,300 and $13,000 annually, but the city's coffers will take a $36.8 million hit from the lost revenue in the 2019 fiscal year.

"The Commercial Rent Tax in its previous form is outdated and we’re proud to make the first changes in over a decade to bring relief to thousands of small businesses," de Blasio said in a statement.

Officials and business groups have pushed for commerical rent tax reform to staunch the bleeding-out of Manhattan's storefronts. Councilwoman Helen Rosenthal's office found 12 percent of storefronts in her Upper West Side district's business corridors were vacant, according to a New York Times editorial published this month.

Some critics have said the Council should pass a law giving businesses more power to negotiate their leases, as rent tax reform does nothing to address the issue of rising rents.

(Lead image: People walk by empty retail space in lower Manhattan on April 17. Photo by Spencer Platt/Getty Images)