The Rent Is Too Damn High! (Rent Tax, That Is)
Ken Biberaj May 7, 2015, 6:32 p.m.
Have you heard about that hot new neighborhood in New York City? It’s incredibly diverse, has tons of new companies and entrepreneurs and it’s loaded with cultural institutions, cool restaurants and trendy shops. It’s called Manhattan.
And yet, Manhattan’s neighborhood feel is changing. Not a day passes without another story about a local business closing to make way for another chain.
People flock to our neighborhoods because of the community and character that exist here. Residents and tourists alike come to Zabar’s for a schmear of the Upper West Side or to Katz’s for a nosh of the Lower East Side—but as small businesses get priced out, that neighborhood identity grows more homogeneous, and we risk losing some of the talent and tourists that flock here. That, in turn, has a huge potential impact on the bottom line of our city, from tax revenue to jobs, revenue for our stores and restaurants, to the interest of businesses in locating here.
But why are the mom-and-pops leaving Manhattan? The stock answer is that Manhattan is expensive; rents and expenses are higher than most other places in the city, they always will be, and that’s just the way it is.
Well, yes and no. Not only do Manhattan businesses have to deal with dramatic increases in rent and expenses, but unlike anywhere else in the city (or the country for that matter), they also have to pay a commercial rent tax (CRT). This tax, in the area of 6 percent, is in addition to the rent and other expenses they already pay. When the CRT was created in the 1960s, our city was in dire need of financial resources and had limited means to raise revenue. In the 1990s, the CRT was rolled back across the city, except for businesses below 96th Street in Manhattan.
Although the city appears to have the legal right to levy this tax, how is it fair? It’s even less fair for small businesses, the ones that just get by and must pay it on top of their rent and other real estate taxes passed on from landlords.
The Manhattan Chamber of Commerce is the voice of the nearly 100,000 small- and medium-size businesses across our city working with advocates in the City Council for a bill that would increase the threshold on the businesses that have to pay the CRT. We applaud the active voice and leadership of leaders like Manhattan Borough President Gale Brewer, who led with action and ideas in her recent Small Business Report to help protect our mom-and-pop businesses.
Currently, businesses paying over $250,000 in rent are subject to the CRT. We would like to see that limit increased to $500,000. In 2013, the city budget was $69 billion and the CRT yielded $652 million from 6,757 tenant businesses. The small businesses with rents below $500,000 (roughly 2,600 in total) accounted for just $33 million in CRT revenue. That is less than 5 percent of the total CRT revenue, which itself was less than 2 percent of the city’s total tax revenue. This modest change would barely be noticed in the city budget but it would have a significant impact on the small and medium businesses that would be exempted from the tax. Furthermore, small-business owners often invest savings back into their businesses. With every dollar that goes back into the businesses, the city would make some monies back through an increase in jobs and sales.
It is harder than ever to run a business in New York City, and policy makers are genuinely taking note of the need to support our entrepreneurs. Making this change to increase the threshold on commercial rent tax will put money back in the pockets of small businesses and send a signal that Manhattan is still the place to pursue your dreams.
It’s time to reform this unfair tax and level the playing field for our small businesses to keep Manhattan moving, and the city thriving.
Ken Biberaj is chairman of the board of the Manhattan Chamber of Commerce.