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NYC Restaurant Tenants Must Keep Rent Records or Risk Overpaying Commercial Rent Tax

July 7, 2015
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Recently a restaurant owner and tenant of an NYC hotel was found liable for Commercial Rent Tax (CRT) owed by both him and a related entity operating on the same premises.

The taxpayer operated a restaurant in the hotel and the related entity operated the bar (and lounge) service at the hotel. The restaurant owner argued that the tax due was not properly calculated because it arbitrarily combined rents that he paid with rents paid by the bar service operator, rather than issuing separate assessments for each.

Because the restaurant owner did not provide any evidence (e.g., copies of journal entries or canceled checks) to support the claim, he was liable for CRT on the amount of rent expense he deducted, as well as the amount of rent expense deducted by the bar service owner. 

Commercial Rent Tax (CRT)
CRT is charged to tenants who occupy or use a property for commercial activity in Manhattan for any trade, business, profession, or commercial activity, and have the following characteristics:

  • Located in the borough of Manhattan, south of the center line of 96th Street
  • An annual or annualized gross rent paid of at least $250,000
  • Do not meet any other exemption criteria, such as short rental periods, residential subtenants, use for theatrical productions, and not-for-profit status.

It’s important to note that tenants with annual taxable rents between $250,000 and $300,000 are eligible for a sliding-scale credit that partially offsets the tax.

A "tenant" is someone who pays rent as a lessee, sub-lessee, licensee, or concessionaire.  Tenant-shareholders in co-ops are included.

You must also pay the CRT if you:

  • Occupy space in buildings owned by spouses or parents
  • Occupy space in buildings you own jointly with another person who is not your spouse or domestic partner
  • Occupy space in buildings owned by corporations where you are an officer or shareholder
  • Are defined as a corporation, occupying space in a building that is owned by a subsidiary corporation or by a parent corporation
  • Are defined as a corporation, occupying a space in a building owned by an officer or stockholder of the corporation.

Leases and agreements stating rents required to be paid and/or the rights of a tenant should be kept for a period of three years after a return is filed or after the expiration of the lease.

For more information on how this might affect you, please contact:

Stacy Gilbert, CPA
Partner
sgilbert@citrincooperman.com or (973) 218-0500