Road to Retail Ruin
The commercial-rent tax is killing Manhattan
NEW York City’s abominable, unjust and irrational commercial-rent tax has got to go — and not only for supermarkets, as their owners and Manhattan Borough President Gale Brewer are demanding. There’s considerable support to at least reduce the retail business-killing levy even in the loony-left City Council.
But Mayor de Blasio, who’s holding out against it, is as pigheadedly determined to stiff the “rich” as he was with his (mercifully abandoned) brainstorm to tax charitable contributions to city parks.
Even by the standards of the overtaxed Big Apple, the “commercial rent tax” stands out as indefensible. Introduced in 1963, it lays a 3.9 percent tax on Manhattan rent-paying businesses below 96th Street based on how much they pay if the rent exceeds a certain amount.
In other words, unlike anywhere else in the country except Florida, the tax is based not on a store’s revenue or profit, but on how much it pays just to occupy a bricks-and-mortar location.
In 2000, the tax applied to businesses that paid $150,000 a year or more in rent. The exemption was raised to $250,000 or more in 2001.
The law is far more destructive today than it was in 2001, because while the exemption hasn’t been raised since then, commercial rents have — astronomically. While that’s due to many reasons, not just to greedy landlords, it’s a fact with which every business owner — small shop and restaurant owners especially — must cope.
In 2001, only the very largest stores at marquee locations paid $250,000 in annual rents. Today, retail rents have risen to that much with every newly signed lease.
Stores and restaurants larger than 5,000 square feet — the dimensions of many a medium-size Starbucks — can pay up to $1 million a year. For a shop making a razor-thin profit while paying $250,000 a year to a landlord, an additional near-$10,000 tax based on the rent can be a doublewhammy dealbreaker.
Owners of 132-odd supermarkets fume that the tax adds to their combined operating costs by $5 million a year. But their smaller competitors — myriad groceries, bodegas and specialty-food shops stuck with $250,000-a-year leases — suffer even more than better- heeled chains operating larger stores.
Sure, the city can use the $815 million the tax brings in. (As our colleague Nicole Gelinas has pointed out, that’s $315 million
more in today’s dollars than in 2000.) But that hardly justifies the additional, often unmanageable burden the tax places on retail operators under siege on all sides, from online competition to landlord price-gouging.
De Blasio should get out of his limo and go for a walk. Storefronts stand empty all over Manhattan — including along the fancy avenues a few blocks west of his Gracie Mansion home.
Every time a store or cafe closes — whether along near-desolate stretches of Broadway or Third Avenue, in Soho or the Wall Street area — it means more than just an unattractive “Prime Retail Space” sign in the window. It means jobs lost and neighborhoods deprived of vital goods and services.
Manhattan Borough President Gale Brewer and Council member Dan Garodnick have proposed raising to $500,000 the amount a business would need to pay in rent to be socked with the commercial-rent tax.
It isn’t a bad idea but doesn’t go nearly far enough to save Manhattan’s fast-degrading retail scene from utter ruin.