As the property tax cap debate rages on in Albany, small business owners in the Lower East Side are struggling to pay their rent and their property taxes, which have increased exponentially for New York City renters in the past few years.
“Every three years, some people change their business names just to cheat taxes and cut down on violations,” said Jaio Morales, manager of Allen Tailoring and Cleaners, at the corner of Allen and Rivington Streets.
Morales, who has managed the business since its opening in 1999, said that besides taxes, they had not suffered too much because of the economy.
“We’ve always had work, thank God,” he said.
The property tax cap currently being considered by the state legislature would limit the property tax to increases of no more than 2 percent per year, giving business owners like Morales some financial relief.
But in New York City, renters face a complex tax system where property taxes are determined by much more than the city tax rate. Consequently, business owners and landlords alike worry that the city will still gouge tenants on taxes.
“I don’t think it’s going to change anything drastically,” said Meghan Joye, owner of two Lower East Side bars and co-chair of Community Board 3’s Economic Development Committee.
“They’ve been working it into leases that commercial tenants have to pay for increases in tax rates,” she said.
The property taxes on one of her bars, Lucky Jack’s, rose from $6,000 in 2004 to $36,000 in 2010.
“My landlord, as do most, passes all real estate taxes on to her tenants,” said Jon Snyder, owner of Il Laboratorio del Gelato, a gelato shop on Ludlow Street. “So any increase in taxes, expenses, affects the bottom line and forces me to either cut costs by paying lesser salaries or increasing the final cost to my consumers.”
Community Board 3’s Economic Development Committee met Tuesday night to discuss the issues facing both landlords and tenants, and invited property owners Sion Misrahi and Michael Forrest and real estate tax specialist Ed Lifshitz to contribute their views.
“I have a tenant right now who is $40,000 or $50,000 in arrears [overdue] on his real estate taxes,” said Forrest, head of real estate management firm Forrest Partners, LLC. “Do I evict this tenant who pays his rent but claims he can’t afford to pay his real estate tax increase?”
Many tenants are not well-educated about their rights when they negotiate and sign their leases, the board realized. Tenants can negotiate what percentage of the real estate tax they pay to their landlords when they sign their lease.
Many business owners in the Lower East Side are new immigrants, who struggle to navigate the red tape and tax law required by the city government. Unsavory lawyers and brokers take advantage of these new immigrants and charge them exorbitant amounts of money, said District Manager Susan Stetzer.
“The only real solution is to empower tenants to negotiate better,” said Forrest.
On this note, the community board decided to create a factsheet and help provide legal services to potential business owners, so that they can sign smarter leases.
Many small business owners are under-capitalized when they start out, and the increases in property taxes only set owners further into debt.
Local property taxes grew by 80 percent from 1999 to 2009, more than two and a half times the rate of inflation during that period, reported the New York State Comptroller’s Office.
For small business owners searching for capital to help start their businesses, local federal credit unions are a valuable resource. If business owners have a checkered credit history or very little starting capital, they often struggle to secure loans from large banks.
The Lower East Side People’s Federal Credit Union offers loans to potential small business owners, even those lacking outside funding or a solid credit history.
Other local, community-based credit unions in the New York City area include the New York Metro Federal Credit Union, Penn South Cooperative Credit Union, University Settlement Credit Union, Greater Metro Federal Credit Union, and many others.
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