In recent months, New York City has aggressively audited compliance with the NYC commercial rent tax (CRT). The CRT is imposed on tenants that lease premises south of 96th Street in Manhattan that are used for commercial purposes. The tax is imposed only on businesses with an annual base rent of $250,000 or more. The tax is 6 percent on base rent, and all tenants are allowed a 35 percent base-rent reduction (the effective tax rate is 3.9 percent). The CRT is not collected by the landlord. Instead, the tenant self-assesses and remits the tax on a quarterly basis to the New York City Department of Finance, with Form CR-A due annually on June 20. The tax is based on rents paid for the 12-month period ending May 31, without regard to the tenant’s tax year.
For purposes of the CRT, a tenant is a business that pays or is required to pay rent, including a lessee, sublessee, licensee, and concessionaire. The base rent generally is the rent paid by a tenant for each applicable premise, reduced by rent received from subtenants. Rent also includes any payments required to be paid by a tenant on behalf of its landlord, including real estate taxes and utilities, unless utilities are separately metered. Rent excludes payments for the improvement, repair, or maintenance of the premises.
A tenant that fails to pay the CRT may be subject to tax for all previous years, as well as penalties and interest. The NYC Department of Finance offers a voluntary disclosure and compliance program. Businesses that have not paid the CRT may be able to use the voluntary disclosure program to limit the lookback period for unfiled returns and eliminate penalties. A formal application must be made with the city to participate in the voluntary disclosure program, but the applications may be made on an anonymous basis.