By Adam Lazarus, CPA, partner, Citrin Cooperman
In New York City’s quest for revenue, it has taken an aggressive stance in collecting commercial rent tax (CRT).
While it’s becoming clear that many companies are subject to this tax, many companies remain in the dark about their obligations.
Luckily for those who become aware of this tax obligation, NYC has established a voluntary disclosure program that can help these companies avoid penalties.
Historically, the CRT was first imposed in 1963, on tenants paying annualized base rents of $250,000 or more for premises. Florida later followed suit, making it the only other jurisdiction in the United States imposing a tax on commercial rents.
In order to close loopholes and account for tenants not paying the tax, local government placed a question in the New York City tax returns asking taxpayers to indicate whether or not they are subject to the tax and are filing and remitting this tax.
As for the details of the CRT, it is applicable to commercial tenants located south of the center line of 96th street in Manhattan.
It is based upon rent paid, which includes any amount paid or required to be paid for use or occupancy of a premise. This definition includes payments for rent, real estate taxes, and utilities.
The CRT is calculated by multiplying the tenant’s rent by 6%. The rent amount is reduced by 35% before applying the 6% tax. Tenants are also allowed to reduce their base rent by any sublease income they receive.
The CRT tax year starts on June 1 each year and ends on May 31. The CRT is required to be filed quarterly along with an annual return.
Tenants who have not filed in the past can enter NYC’s Voluntary Disclosure Program. By entering the Voluntary Disclosure Program all penalties are generally waived and NYC will offer a three-year look back period to file returns that were previously not filed.
If a person is contacted by NYC about not properly filing CRT forms, he or she is no longer eligible to participate in the Voluntary Disclosure Program.