If you’re running a business in Manhattan, you already know the rent is basically a second mortgage you never signed up for. But there is a specific, somewhat local "quirk" in the tax code that catches people off guard every year. It’s the New York City Commercial Rent Tax, or CRT.
Most people think if they pay their landlord, they’re done. Wrong. If you are south of 96th Street, the city wants a piece of that rent check too.
Honestly, the CRT is one of those "only in New York" headaches. It doesn’t apply in Brooklyn. It doesn’t apply in Queens. If you’re on 97th Street? You’re in the clear. But cross that invisible line into the heart of Manhattan, and suddenly you’re looking at an effective tax rate of 3.9% on what you pay to occupy your space.
Who actually has to pay this thing?
It’s not every single coffee shop and boutique. The city has set a threshold that keeps the smallest players out of the line of fire. Generally, you are subject to the tax if your annual gross rent is at least $250,000.
But here is where it gets tricky. Even if you don't owe a dime, you might still have to file. If your rent is over $200,000, the Department of Finance wants a return. They want to see the math.
Think of it as a "just checking" fee.
The definition of a "tenant" is also surprisingly broad. It’s not just the person whose name is on the lease. If you’re a sub-lessee, a licensee, or even a concessionaire in a larger space, you’re potentially on the hook. We've seen cases where businesses in office-sharing arrangements got hit because the city decided their "membership fee" was actually just rent in disguise.
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The Math: Why 6% is actually 3.9%
If you look at the official books, the tax rate is 6%. That sounds terrifying.
However, NYC grants a 35% base rent reduction to everyone. So, you take your rent, chop off 35%, and then apply the 6% tax to what's left.
$$\text{Effective Rate} = 0.06 \times (1 - 0.35) = 0.039$$
Basically, for every dollar of "base rent," you’re sending 3.9 cents to the city.
Base rent isn't always just the number on your lease agreement, though. It usually includes:
- Standard rent payments.
- Real estate taxes passed through to you by the landlord.
- Water and sewer charges.
- The value of any improvements you made in lieu of rent.
You can, however, deduct rent you receive from subtenants. If you’re paying $500,000 but subbing out a back office for $100,000, your base rent drops to $400,000.
The Small Business Tax Credit (The Savior)
Back in 2018, the city finally realized that $250,000 in rent doesn't mean you're "rich" in Manhattan—it just means you have a storefront. They introduced the Small Business Tax Credit.
If your "total income" (which is basically your federal total income) is $5 million or less and your annual rent is under $500,000, you might get a credit that wipes out the tax entirely.
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There’s a sliding scale, too. If you make between $5 million and $10 million, or if your rent is between $500,000 and $550,000, you get a partial credit. It’s a bit of a "cliff" though. Once you hit $10 million in income or $550,000 in rent, the credit vanishes. Completely.
Deadlines you can't miss
New York is not patient.
The tax year for CRT runs from June 1 to May 31.
- Quarterly Returns: Due September 20, December 20, and March 20.
- Annual Return: Due June 20.
As of early 2026, the interest rate for late payments is sitting at a painful 11%. If you miss the window, the city doesn't just want the tax; they want a tip for the trouble of chasing you.
Location, Location, (No) Taxation
There are "safe zones."
If you are in the World Trade Center Area, you’re generally exempt.
If you’re in a Commercial Revitalization Program abatement zone and you’re using the space for retail, you might also skip the tax.
But for most of us in Midtown or Chelsea? We're paying.
What most people get wrong
The biggest mistake? Assuming "gross rent" and "taxable rent" are the same. They aren't.
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I’ve seen business owners panic because their lease says $260,000, thinking they’re over the threshold. But after they deduct the 35% statutory reduction and maybe some utility pass-throughs that don't count, they’re actually below the taxable limit.
On the flip side, some people forget that "rent" includes the property taxes they pay on behalf of the landlord. In a NNN (Triple Net) lease, those taxes can easily push you over the $250,000 limit.
How to handle this now
Don't wait until June 19 to look at your ledger.
First, pull your lease and look at the "additional rent" clauses. If you’re paying for the landlord's property tax increases, add that to your base rent.
Second, check your total income from your last federal filing. If you’re hovering around that $5 million mark, you need to be very precise. A few extra dollars in revenue could cost you thousands in lost CRT credits.
Third, if you sub-lease space, make sure you have the subtenant's EIN. You can’t claim the deduction on your CRT return without it.
The New York City Commercial Rent Tax is a weird, localized burden that feels unfair because it is. But it’s also predictable. If you’re south of 96th Street, treat it like the weather—you might not like it, but you definitely have to prepare for it.
Check your 2025 federal tax return against your current rent rolls. If you’re close to the $500,000 rent or $5 million income thresholds, sit down with your accountant before the March quarterly filing to see if you can still qualify for the Small Business Tax Credit.