Posted in Business & Corporate Law,Real Estate Law,Tax Law & IRS Defense

A legislative bill was recently enacted that may reduce the sales tax rate on commercial leases to 2%. The timing of the decrease depends on the economic recovery of the unemployment compensation trust fund. Once this balance has reached its pre-pandemic level, the sales tax rate will adjust. You may need to periodically consult with your accountant to determine the current tax rate since it is contingent upon the amount in the employment compensation trust fund.

By way of background, in Florida, there is a statewide tax of 5.5%, plus an applicable discretionary sales surtax, due on the total charged for renting, leasing, or granting a license to use commercial real property, such as office or retail space, unless the rent is specifically exempt. Over recent years, Florida has reduced the statewide tax from the original 6%. The discretionary sales surtax is the tax rate imposed by the county where the real estate is located. There is no limitation on the amount of surtax for the rental or lease of commercial real estate.

In order for the tenant to use or occupy real property, the total rent charged must include what is due and payable to the landlord. Payments for services which are required to be paid by the tenant, such as common area maintenance or parking, are to include sales tax and surtax. Additionally, if the tenant makes payments on behalf of the landlord for items like mortgage payments or insurance, sales tax and surtax must be applied here as well.

Section 212.02(12) of the Florida Statutes defines the rentals, leases, and licenses by related persons to use or occupy commercial real property, which are subject to sales tax and surtax. For example, the lease of commercial real property by a parent corporation to one of its subsidiaries, or by a shareholder to a corporation, or by an individual property owner to a related single member LLC, is subject to tax. If you sublease a commercial property to another tenant, you must collect the applicable taxes on any rental payments received. You can, however, take a pro-rated credit for the taxes you paid to your landlord.

If you run afoul with these rules, the Florida Department of Revenue is generally the agency that enforces the laws. In those situations, please consult with your tax professional or a tax attorney.