NYC’s small businesses strapped by 1960s tax

The sky’s the limit with city hall’s taxes and charges.

For New York City’s small-business owners overburdened by escalating costs, one of the hardest bills to swallow is the byzantine commercial rent tax (CRT), which puts as much as $687 million in the city’s coffers each year.

Cutting these businesses a break is a no-brainer, the tax’s detractors assert.

The CRT was enacted by a cash-strapped Gotham back in the 1960s. When fiscal conditions later improved, it was eliminated citywide — except for business owners located in a vast tract of Manhattan stretching down from 96th Street.

As many as 6,700 Manhattan business owners who rent their establishments are now geographically in the grip of the CRT. And as more local businesses fall victim to rising rents and overhead, and are supplanted by chain stores with deeper pockets, the CRT has become the lightning rod for their pent-up anger.

City landlords seek an average of $94 per square foot per year versus $34 in San Francisco and $13 in Atlanta, according to a study by Cushman & Wakefield.

Many in the local business community — from mom-and-pop stores to enterprises employing a few hundred — want the CRT pared or eliminated.

“The city taxes anything that moves,” said Sharon Soper, owner and executive director of the Ivy League Early Learning Academy, a child-care business that employs 170 people at five centers across the city’s boroughs, including Manhattan. “It seems like every time you turn around there’s a new tax.”

Businesses that pay $250,000 or more in annual rent are hit up for the CRT at a rate of 6 percent. That sum can include a share of a building’s real estate taxes and utility charges. The city says the “effective” CRT rate is slightly less than 6 percent. But even at 5 percent, it translates into $50,000 a year for Ivy League, which says it pays about $1 million in annual rent at its two-floor Chelsea location. That CRT sum is enough to pay for an additional employee.

Soper applauds the campaign by the Manhattan Chamber of Commerce and City Council advocates to raise the CRT threshold to $500,000. About 2,600 small businesses that account for about $33 million in CRT monies would benefit if that effort succeeds. Though it won’t bring immediate relief, it could be a defining step toward further reform, analysts say.

“The CRT is very steep, considering we are already paying rent here in Manhattan that is higher than all of our other schools put together,” Soper said. “It all becomes frustrating — and it can force you to put up your prices to keep up,” she added.

Dave Goodside also knows how frustrating it can be.

Goodside, owner of the popular Beach Cafe, employing 25 on 70th Street and Second Avenue, says the many empty storefronts in his Upper East Side neighborhood are a dismal sign of the times.

“Commercial rents are at the highest level I can ever remember,” said Goodside, who has run his business for 46 years. “The small-business person in New York is struggling.”

And with large increases in utilities and city charges and talk of a higher minimum wage, Goodside says his profit margins could be crimped further. He estimates his food costs alone have risen in the past few years from 25 percent to 33 percent of the final sale price on his menu. “We will try to find ways to increase our sales so that we can meet our expenses,” he said.

Soper at the Ivy League Early Learning Academy says the CRT — on top of other high city costs — simply discourages her from expanding her operations in Manhattan. This could be a long battle.

Nancy Ploeger, president of the Manhattan Chamber of Commerce, says reform of the CRT is a matter of fairness, but she is realistic.

“We are fighting for the elimination of this commercial rent tax,” said Ploeger. “But the city is unlikely to give up $687 million in revenue.”