Local burrito chain Dos Toros pays thousands of extra dollars a year on top of rent at about half of its 13 locations — all because of a little-known law called the commercial rent tax that impacts many Manhattan restaurants that pay more than $250,000 a year in rent.
Co-owner Leo Kremer says that he and his brother Oliver didn’t know the tax existed, and when they found out, they had to delay paying for things like new equipment and design changes.
“I think every business in New York City is grappling with high rent already,” Kremer says. “It seems crazy to have a special tax that just increases it further.”
In the last year, politicians in Manhattan have been trying to reduce the number of businesses that have to pay the commercial rent tax, or CRT. It’s a provision from the 1960s that adds a 3.9 percent surcharge to any business below 96th street paying more than $250,000 a year in rent, which, as turns out, is a pretty easy threshold to meet.
The New York Hospitality Alliance, a trade group representing restaurants and bars, has been trying to change the tax for years. It was originally intended to target big businesses, but with how crazy rents have gotten in Manhattan, it’s now impacting lots of mom-and-pops, too.
More than 40 of the 51 City Council members have signed on to the bill that would raise that $250,000 threshold to $500,000, reducing the number of businesses (including restaurants) that would have to pay by some 40 percent.
Practically speaking, changing the law would be like getting a week’s worth of profit back, says James Mallios, owner of Amali, who’s paid anywhere between $5,000 and $10,000 a year for the tax in the past.
But despite wide support and a slew of press, the bill is not actually a sure thing to pass because Mayor Bill de Blasio doesn’t want to sign it.
“At this time, especially given the uncertainty about the federal budget, health care, and tax reform, we don't feel it's the right time to take major action on the commercial rent tax,” mayoral spokesperson Freddie Goldstein said in a statement.
It’s a position that many restaurateurs hope the mayor will change, especially as major restaurants continue to close due to rising costs.
Andrew Rigie, executive director of the trade group New York City Hospitality Alliance, says it’s simply an unfair tax. Many restaurateurs have told the group that they didn’t even know the tax existed until they were hit with an audit saying they owe thousands of dollars, Rigie says.
Plus, no businesses in any of the other boroughs or above 96th Street need to pay it, making it a geographically discriminatory, advocates argue.
“Every day we hear about another beloved mom-and-pop going out of business,” he says. “Passing this CRT reform bill will significantly help.”
If the bill passes, the city would lose out on about $55 million in revenue, a figure that includes cash from non-restaurant retail. But councilman Daniel Garodnick, who represents Midtown East and spearheaded the effort, argues that the city’s revenue from the tax would only decline by 6 percent by changing the law. It’s worth it to give some “immediate relief” to businesses, he says.
De Blasio’s statement added a list of items he’s done to help small business, like reducing fines by offering free consulting, although he currently still has no plans to support this particular bill.
The bill has to be called to a vote in the council this fall before it goes to the mayor’s desk, and with such expansive support, City Council could theoretically overrule a veto from the mayor and pass the bill, Garodnick says.
Garodnick wants the mayor to come on board, though. The councilman says that no matter what de Blasio’s already done for small businesses, this is an easy way to throw another lifeline.
“The city is stepping on the neck of small businesses in this area specifically, today,” Garodnick says. “We have a chance to give them a break, and we should.”