NYC Commercial Rent Tax When Disasters Force You Out
The New York City Commercial Rent Tax is a tax imposed on the business tenant, lessee, sublessee, licensee or concessionaire paying rent to carry on commercial or professional activities on the premises. In other words, the City imposes a tax on any rental of commercial premises located south of 96th Street in Manhattan whose annual gross rent paid for the location is at least $250,000. (There are some exceptions; notably the area around the World Financial Center).
Certain taxpayers may have recently been forced out of their premises due to disasters (ahem, Hurricane Sandy, ahem), and thus may be wondering how the Commercial Rent Tax would work in the instance in which a lease was broken, renegotiated, suspended, or otherwise altered.
While the rents subject to the Commercial Rent Tax are calculated on an annualized basis, the actual tax is calculated on, essentially, the cash basis. Thus, if you stopped paying rent on a premises, you will not owe tax on those periods where no rent was due. However, assuming that you lease (or sublease) a new location, and the new temporary lease, when annualized, exceeds the $250,000 minimum, you will owe the Commercial Rent Tax on any rents paid to this new location. In other words, a corporation that needs a lot of space, and thus was paying significant rent in its permanent but now damaged location in the Sandy flood zone, and is now paying another significant amount of rent at its “temporary” location elsewhere in Manhattan, is going to pay the Commercial Rent Tax on rents ACTUALLY paid at either or both locations.
To report rent paid for part of a quarter, but not all three months, you would state as much on lines 10, 11, and 12 on page 2 of the Commercial Rent Tax Return (Form CR-A).