Florida’s Sales Tax on Commercial Leases Reduced Again, Effective January 1, 2020
Florida is the only state in the country that imposes a comprehensive sales tax on commercial real estate leases. The state’s Department of Revenue estimated that at least 150,000 businesses collectively paid almost $2 billion in commercial lease taxes in 2018.
After prior failed attempts, the Florida legislature has been successfully whittling away at this tax in small increments since 2017. The most recent reduction took effect on January 1, 2020, pursuant to House Bill 7123, which revised § 212.031, Florida Statutes, to permanently reduce the tax levied on the total rent or license fee charged for “renting, leasing, letting, or granting a license for the use of any real property” from 5.7 to 5.5 percent.
This sales tax applies in most commercial lease contexts in Florida, to all base, additional, and percentage rents, as well as any other consideration “for the granting of a privilege to use or occupy real property for any purpose,” with certain rarely applicable non-taxable use exceptions.
There is typically an additional county imposition (e.g., an additional 2.5% in Hillsborough County, and 1% in Pinellas and the majority of other Florida counties) that must be tacked onto the 5.5% remittance. The statute also makes clear that the tax rate applicable to any rental payment is the rate in effect during the period of occupancy relevant to that payment, not the time of payment of such rent. This means that any delay or acceleration of a given rental payment is irrelevant to the rate applied to that remittance.
There is little doubt that the Florida legislature will continue its effort to reduce this tax, including anticipated proposals this year to further reduce the rate by as much as .5%, and to fully exempt certain small businesses altogether based on employee count. We will keep our clients apprised of any further successful measures in this regard.
In the meantime, we encourage our clients who participate in any commercial leasing arrangements in Florida to account for this latest rate adjustment in their collections and remittances.