New York Knicks’ Home Court Holds History of Unusual City Tax

As the New York Knicks prepare to square off at home for Game 3 of the NBA Finals, quietly standing in the background is another one of the city’s most enduring institutions: the commercial rent tax, or CRT.

Following the Knicks’ last championship victory in 1973, accounting firm Peat Marwick Main & Co.—a predecessor to what is now KPMG—entered into a series of agreements with Madison Square Garden that entitled the firm to use a luxury skybox suite for all ticketed events held at the arena.

The New York City Department of Finance in 1987 determined that the firm owed the city’s CRT on the payments that it made to MSG to use the suite. Peat Marwick challenged the city’s application of the tax and won, allowing firms today to host events at MSG without the need to file a tax return.

What appeared to be a straightforward agreement to entertain clients ultimately produced one of the most important CRT decisions ever issued. The case serves as a reminder that tax outcomes often turn not simply on the activities engaged in, but on how those activities are characterized under the law.

Still, the CRT is one of New York City’s most unusual taxes.

Enacted in 1963 as a supposedly temporary measure during a fiscal crisis, the tax has outlived many other New York levies. Unlike an income tax, which is imposed against earnings, or a property tax, which is generally assessed based on the value of property, the CRT is an excise tax on the amount deemed paid for certain use or occupancy of property.

Specifically, it applies to tenants occupying commercial premises in Manhattan south of 96th Street, subject to phase-ins and exceptions. Put simply, a business can owe tax to New York City because it makes rent or rent-like payments for the use of property in Manhattan.

Inside New York City, the CRT remains one of the most misunderstood parts of the local tax system. Its narrow geographic scope, unique structure, and highly fact-specific application create recurring compliance issues for businesses. Many taxpayers discover the CRT only after receiving an audit notice or engaging in due diligence for a transaction.

Non-filers face penalties and steep interest on unpaid amounts. Even among taxpayers who are aware of the CRT, uncertainty often arises about how the tax is applied—including what constitutes taxable commercial use or occupancy. That was true when the Knicks won the championship in 1973, and it remains true today.

What makes the Peat Marwick case noteworthy isn’t simply that the firm prevailed, but why.

The city focused primarily on the existence of a business purpose for occupying the premises. The court focused on the broader nature of the arrangement between the parties and noted that, even though the taxpayer had used the suite for a business purpose, such use fell outside of the “essence of the agreements.”

Instead, the court emphasized that the suite was only available during events and that admission to “events, with the amenities and conveniences to make…viewing more comfortable, was the essence of the agreements.”

The court concluded that entertaining clients at sporting events and concerts wasn’t an “integral part” of the accounting firm’s business. The firm’s accounting services weren’t performed in the suite. No financial audits were conducted, and no tax returns were prepared. Instead, the space functioned as a venue for client entertainment rather than a place where the firm’s professional services were performed.

The Peat Marwick case reflects a broader theme that appears throughout tax law: characterization matters.

Many tax disputes turn on characterization. The issue may involve debt versus equity, business activity versus investment activity, or whether multiple transactions should be respected separately or collapsed into a single transaction.

CRT disputes frequently involve a similar exercise. Two taxpayers may occupy similar space and pay similar rent yet reach different tax outcomes because of other factors.

That is what makes CRT disputes deceptively difficult. The facts matter, but so does how those facts fit within the statute. The result is a tax that can appear simple but often requires careful analysis.

Through countless seasons and shifting rosters, the Knicks have remained a fixture of the New York landscape. While coaches and championship hopes come and go, MSG remains at the center of the city’s cultural identity.

The CRT has demonstrated similar staying power. Despite its narrow geographic scope and unusual structure, it continues to affect thousands of Manhattan businesses and generate an array of disputes.

More than a half-century after its enactment, the CRT remains firmly embedded in New York City’s tax system. Much like MSG itself, or Father Knickerbocker returning to center stage, it has become a lasting part of New York’s landscape.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law, Bloomberg Tax, and Bloomberg Government, or its owners.

Author Information

Jarrett S. Kalish is the managing member of Kalish Law LLC and was an administrative law judge at the New York City Tax Appeals Tribunal and tax counsel for the New York City Department of Finance.

Nicholas Combs, a state and local tax attorney, is of counsel at Kalish Law LLC.

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