Understanding Commercial NYC Rent Tax Return: Key Insights and Updates

Since New York City allowed the SMB tax credit on the first of July 2018, there has been no compelling shift regarding implementing the NYC rent tax return. However, the Commercial Rent Tax (CRT) and its various exemptions, credits, and other intricacies tend to raise disorientation between taxpayers within its subject boundaries.

In this article, we’ll overview commercial NYC rent tax returns and standard guidelines as they apply to common CRT tax-related questions.

What Is Commercial NYC Rent Tax Return

The New York City Commercial Rent Tax includes six percent of the tax imposed by renters who occupy or use a Manhattan, south of 96th Street property for commercial activity.  All taxpayers are entitled to a 35% discount on base rent. Hence, they only have to pay CRT on 65% of their gross rent paid to the tenant, which lowers the effective tax rate to 3.9%.  Taxpayers whose annualized gross rent payment exceeds $200,000 or whose annual rent receipt from subtenants exceeds $200,000 must file Commercial NYC Rent Tax Returns.  Whether the company qualifies for the Small Business Credit or the CRT credit determines how much CRT is due.

Types of Credit Available and How To Calculate Them

Regular CRT credit and Small Business Tax credit are two types of credit available for the New York CRT. Here is how to calculate each of them:

Regular Commercial Rent Tax Credit

The first type of credit to examine is the regular commercial rent tax credit for renters with a base rent of less than $300,000.  The credit amount is calculated using the equation shown below.

Credit= Tax Due x $300,000 – Base Rent Before 35% Rent Reduction / $50,000

The preceding calculation makes it generously evident that if a taxpayer’s yearly base rent is less than $250,000, a full tax credit will balance the tax payable, therefore exempting renters with base rents less than $250,000 from the CRT.  Tenants qualified for a partial credit have a basic rent higher than $250,000 but less than $300,000.

Small Business Tax Credit

SMB Tax Credit, which was implemented on July 1, 2018.  The credit’s name definitely suggests that it is solely accessible to small-sized firms.  The New York City Department of Finance has created two criteria for screening out small firms from the tax system: one for revenue and one for yearly rent. The income barrier is $10,000,000, while the annual rent threshold is $550,000. If either level is surpassed, the taxpayer would be prohibited from obtaining this credit. The Small Business Tax Credit computation equation is below.

Small Business Credit = (Tax Due – CRT Credit) x $10,000,000 – Total Income / $5,000,000  x $550,000 – Base Rent Before 35% Rent Reduction / $50,000

In line with the calculation above, small firms earning no more than $5 million annually and spending no more than $500,000 yearly in rent are eligible for the entire small business credit. Taxpayers will obtain a partial small company credit if their base rent is between $500,000 and $550,000 and their total revenue is less than $10 million.  Furthermore, firms that generate over $5 million in gross sales but less than $10 million and spend less than $550,000 in yearly rent will qualify for a half-small company tax credit.   For the purposes of the small business credit, total income is defined as minus the cost of goods sold and returns and allowances in the tax year immediately before the period for which the renter claims the credit. For example, renters should utilize their entire revenue in the tax year 2021 when estimating their small business credit for the CRT period of 2022-2023.