In the absence of a state-level personal income tax, Florida has found other unique ways to raise revenue. One such distinct approach is Florida’s application of sales tax on commercial rentals. However, in response to growing calls from the Florida business community and commercial real estate owners, the state has begun a gradual reduction of its commercial rent sales tax rate in recent times.
For background, in Florida, rental, lease, or licensing of commercial real property is subject to state sales tax. There are scant few exceptions, and the sales tax specifically applies to payments made for the right to occupy or utilize the real estate, covering base rent, additional rental fees, and other obligatory payments throughout the lease period.
In recent years, Florida commercial tenants have seen a gradual reduction in the sales tax rate on commercial rents in Florida. Formerly at 4.50%, this rate sank to 2.00% on June 1, 2024 (a change originally slated to take effect July 1, 2024.)
However, despite the reduction in the state rate, additional rent taxes remain in counties where they are imposed. In 2024, these surtax rates range from 0.5% (like in our home county of Martin County, Florida) up to 1.5%. Note: Collier County repealed its surtax last December 31, 2023.
For administration purposes, each commercial rental property location is regarded as its own distinct business entity, necessitating its own tax certificate. Furthermore, while landlords or their property management companies usually handle tax registration, collection, and remittance, tenants may become individually liable for taxes if their landlords fail to collect and remit their use taxes, especially in the event of a sales tax audit. Therefore, it is smart business for lessors and lessees to review existing lease agreements for clauses pertaining to sales taxes, including the determination of the tax base and the applicable tax rate.
Interestingly, this tax, also referred to as the “Business Rental Tax,” not only encompasses rentals of commercial office or retail space, but also catches warehouses, self-storage units, and mini-warehouses, but specifically excludes sales and use tax on parking lots, boat docks, and aircraft hangars, which are subject to separate regulation.
If you are a commercial landlord or commercial tenant and have questions about the new tax rate, or any other questions about commercial real estate or business law, the dedicated business law attorney at Woodward, Kelley, Fulton & Kaplan is just a phone call away for assistance. Please don’t hesitate to call on us anytime.