‘Fantastic’ Bill to Lower Taxes on Mom-and-Pop Businesses Passes Council

Cafe Tallulah is expected to be one of the 2,700 small businesses helped by a city tax cut.

By Carol Tannenhauser

When he heard about the forthcoming changes in the Commercial Rent Tax (CRT), levied on businesses in Manhattan below 96th Street, Greg Hunt, the co-owner of Café Tallulah, on 71st and Columbus, said, “That’s fantastic!” and started calculating.

“That’s $15,000 we’ll be saving a year,” he said. “Will it make it or break it for us? No. But this is a classic mom-and-pop shop and $15,000 helps enormously. Rents and everything else are going up. It’s nice to have something going down.”

Hunt was reacting to Thursday’s announcement of legislation passed by the City Council and supported by Mayor de Blasio, “aimed at helping New York City’s small businesses succeed,” according to the city’s website, nyc.gov.

“Effective July 1, 2018, the threshold for Manhattan’s CRT for businesses with income up to $5 million will increase from $250,000 to $500,000 annual rent, with the benefit provided on a sliding scale for businesses with income between $5 million and $10 million or paying $500,000 to $550,000 in rent. In total, the move reduces taxes for 2,700 small businesses, including 1,800 that will no longer pay the tax at all. Under this move, the average business owner will receive between $11,300 and $13,000 in annual tax relief. This represents the first change to the CRT since 2001 and specifically targets Manhattan’s mom-and-pop shops and small businesses, with 99 percent of the benefit going to businesses with only one or two taxable locations. The bill was voted on earlier in the day by the City Council and will be signed by the mayor in the coming weeks.”

As recently as August, the mayor was not such a sure thing. “The legislation is expected to cost the city $38.6 million in foregone revenue in fiscal year 2019,” The Real Deal reported. “This was a sticking point for the de Blasio administration.” But, by Thursday, with enough Council Members behind the bill to override a veto, the mayor said at a press conference, “Anyone with eyes to see knows there is a crisis with our mom-and-pop stores. We have to right a wrong here.”

“It’s wonderful,” said Greg Hunt. “I’m very, very appreciative to the City Council and the mayor for doing this.”

The legislation was introduced in 2015 by Council Member Dan Garodnick of the 4th district. District 6 Council Member Helen Rosenthal, who was co-lead sponsor of the bill, praised his “incredible leadership on this issue.”

Photo via Cafe Tallulah.

NEWS | 22 comments | permalink
    1. dannyboy says:

      Tax reform that helps. That IS ‘Fantastic’.

      • Frank says:

        Who does this help? It may appear to help the shop owner but ultimately the landlords will simply increase rents in line with this. This is government subsidizing landlords now.

    2. EricaC says:

      I have a suggested approach for tax policy for the empty storefronts. I think we should treat real estate like “hobby” businesses. If I recall correctly, if you have a “hobby” business, you can only treat it as a business for tax purposes, and deduct its expenses, if it makes a profit three out of 5 years. (https://turbotax.intuit.com/tax-tips/small-business-taxes/when-the-irs-classifies-your-business-as-a-hobby/L5NClTTtK). This is so that people can’t claim their knitting is a business, or their garden, or whatever, and deduct the cost of what is really a hobby.

      It seems to me we should take a somewhat analogous approach to business premises. You can treat it as a property that you rent out as a business only if it is rented for at least 3 out of 5 years (or 7 out of 10 or something like that). There could be an “out” if a suitable authority finds that there is an economic emergency that makes it impossible to rent in an area – but otherwise, you can no longer treat the property as a business property and you can’t deduct any expenses of owning or operating it.

      It seems as though that leaves rent to private negotiation, would not have a detrimental effect on the tax rolls, would create an incentive to get your property rented out rather than waiting for some mythical day when you could get more rent, but still gives the owners some flexibility.

      This would discourage storefronts staying open forever. It wouldn’t solve the “mom and pop” problem, but it might ease it a little, as owners of properties would be pressed to keep the property used – so they might not agree to leases that are very long, but might agree to let someone use the property for a few years while they wait for the market to turn. That could give the mom and pop enough time to get their feet under them.

      What do you folks think?

      • geoff says:

        such a sober idea might also apply, as a concept, to the problem created by residential real estate’s fast rising prices, when they are attributable to foreign investment. the kind when foreign capital invests in, but does to occupy, apartments. might it not?

      • Smithe says:

        The problem is not just rent but actually more related to revenue generation of the tenants. Until you can come up with a solution/alternative to the new retail landscape that we ALL have helped create, I am afraid no governmental regulation/policy is going to help sustain small business. Small business owners do not stand a chance if customers insist on shopping from the comfort of their own sofas.

    3. Sherman says:

      Any relief from the CRT for small businesses is a good idea and a step in the right direction.

      I doubt it will save many small businesses but it won’t hurt.

      However, the CRT is small potatoes compared to the 421-A tax break given to wealthy real estate developers. The 421-A costs the city over $1B a year in tax revenues. The 421-A should be ended or at least modified.

      The city could desperately use the revenue it is forgoing from the 421-A tax break.

      • your neighbor says:

        421-a builds most of the mid market housing in the outer boroughs. Getting rid of it would pretty much stop development of new housing (even new housing with “affordable” housing components).

        • Sherman says:

          If the city is forgoing over a billion a year in revenue due to the 421-A tax break then these apartments are not “affordable”.

          They are subsidized.

    4. Donald says:

      Great! Now we need to get the city and state to lower residents’ income taxes.

    5. James says:

      Conceptually a good idea, but landlords will eventually raise rent to capture these profits. To lower rents you need to tax vacant space after a period of time.

      • Frank says:

        This is correct. All we are doing is passing the money from the city to the land lords. When store owners calculate how much they can spend on rent now they will factor in the tax break. This is drive up costs as the landlords will be able to make this calculation too and shop owners can afford it.

    6. robert says:

      Trump cuts taxes for all biz, including the passthruth tax on small biz like S corp.’s and LLC’s, which would help much more. (These are how most mom & pops are set up) And its bad.
      The City Council passes a feel good tax abatement decades after most mom and pops are gone.
      If our UWS neighbors were really concerned about saving mom and pops they would be shopping differently. Walk down any block when the recycling for your building is put out and take a good long look at all the fresh direct, amazon, jet, pea pod etc boxes are there. That is the reason these mom and pops are gone. They could not compete with your changed shopping patterns

    7. nycityny says:

      Why are rents subject to a tax at all, especially one paid by the renter? That’s about as “business-unfriendly” as you can get.

      • EricaC says:

        Profits are generally subject to taxation, so of course rent received would be taxed to the extent it represents a profit. To quote someone above, if the government forgoes taxes on these profits, these business people are being subsidized.

        • All profits are subject to tax. The complex tax code makes some profits more taxable than others. Like a sales tax, CRT tries to recover business income used to pay rent that is deducted as an expense by the renter.

    8. Chris says:

      Not really helping when monthly rent doubles on these places after their initial lease is up. A tax credit for the owner of the space not raising the rent would be better tax reform.

      • EricaC says:

        If a store can’t meet market rents forever, then unfortunately that likely means it doesn’t have enough custom to be economically viable. That is going to be true of a lot of stores if people keep shopping online and heading out to big box stores. You can’t hold that off forever. So this “fix” would not save stores forever – but it might stop the short/middle-term problem of landlords tossing out viable tenants on the vain hope that a huge payoff will come in the distant future. I think this proposal would be aimed more at ending the long stretches of empty storefronts.

    9. The Commercial Rent Tax loss from small businesses is minimal. It will be recovered by allowing more large commercial space to be built which gets taxed. Additional changes in zoning to allow more commercial space can increase the CRT income to the city. Zoning changes take longer to implement due to public hearings and approval by multiple levels of government.

    10. Arlene says:

      Cafe Tallulah’s prices have go through the roof which is why we no longer go there. Will their tax savings affect their prices? Probably not.

    11. B.B. says:

      This is all well and good while NYC is flush with cash, but come the next fiscal crisis we shall see what we shall see.

      Meanwhile back at the ranch as myself and others have been saying; the problems with retail are not always tied to rents, but the fact habits and tastes have changed. Oh and there is that vast and growing behemoth called online/internet.

      You can’t move for the number of packages in many NYC building lobbies, package rooms or wherever that arrive on a daily basis.

      New Yorkers wailed and moaned to keep Walmart out, well Jeff Bezos and Amazon are causing more “hurt” to NYC retail than Walmart ever could. The young kids in my building order nearly everything from toothpaste to toilet paper online.

      If you’re someone starting or has a small retail business, how are you going to compete with Amazon Prime or Jet?