As we have previously noted, Florida is the only state in the country that imposes a comprehensive sales tax on commercial real estate leases.
While the tax is here to stay, at least for the near term, the Florida legislature has continued its efforts to at least reduce the effective rate of this rental tax since 2017, with additional reductions having been passed in 2020, 2021 (which is actually the latest reduction to take effect next month, as discussed below), and most recently on December 1, 2023, when the legislature permanently reduced the state portion of the tax that is 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 5.5% to 4.5%.
The Florida Department of Revenue recently announced that the tax rate reduction passed in 2021 will take effect on June 1, 2024, now that the Florida Unemployment Compensation Trust Fund has reached its pre-pandemic balance, as was required by Senate Bill 50 that year. That legislation offers the most significant reduction to date. So, on June 1 the state portion of the tax rate will be reduced from 4.5% to 2.0%, a welcome adjustment to every commercial tenant’s bottom line.
As a reminder, this sales tax applies 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” in most commercial lease contexts in Florida, with certain rarely applicable non-taxable use exceptions. There is typically an additional county sales tax imposed (e.g., an additional 1.5% in Hillsborough County, and 1% in Pinellas and the majority of other Florida counties) that must be tacked onto the state’s remittance rate. 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.
As always, we will keep our clients apprised of any further developments on this front. In the meantime, we encourage our clients who participate in any commercial leasing arrangements in Florida, whether as a landlord or a tenant, to account for this latest rate adjustment in their payments, collections, and remittances, beginning on June 1, 2023.
