Florida Lowers Again The Sales Tax on Commercial Real Estate Leases

Posted By Pedro Gonzalez, CPA on Nov 11, 2019 | 0 comments


The Florida legislature voted to again reduce the sales tax, which is imposed under section 212.031, Florida Statutes, that commercial real estate owners charge and receive from tenants to 5.5 percent in 2020 from its current rate of 5.7 percent. Real property rentals subject to the reduced rate include commercial office space, retail, warehouses and certain self-storage units, excluding storage for motor vehicles, boats and aircraft.

It is critical that commercial real estate owners in the state recognize the applicable sales tax rate is based on the timing of when a tenant occupies or has a right to occupy the property and not the month or year in which the tenant pays the rent. Therefore, the 5.5 percent tax rate will apply only to rental charges a tenant pays for occupancy on or after January 1, 2020. Should a tenant pay rent after that date for a rental period prior to January 1, 2020, the applicable sales tax rate would be 5.7 percent plus any applicable discretionary sales surtax. Similarly, rent a tenant pays in December 2019 for occupancy in 2020 would be subject to the new, reduced rate of 5.5 percent (Tax Information Publication, No. 19A01-11, Florida Department of Revenue, October 30, 2019 and Section 5, Chapter 2019-42, Laws of Florida; Sections 212.031(1)(c) and (e) and 212.099, Florida Statutes).

Real property leases are taxed on base rent as well as other payments tenants must make as a condition of their occupancy. This includes common-area maintenance fees, property taxes and utilities that a lease agreement specifies are the responsibility of the tenants. In addition, it is the responsibility of the property owner to collect from tenants any county-imposed local-option sales surtax on the total rent charged.

Property owners who send invoices to tenants for rental periods after Jan 1, 2020, must account for both the 0.2 percent reduction in state tax rates as well as any changes in local option tax rates for 2020. Florida is the only state in the union that collects sales tax on commercial rentals. This represents the second time in as many years that the legislature has moved to reduce this unpopular tax.

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