As of January 1, 2020, the Florida legislature reduced the state commercial rental tax from 5.7% to 5.5%. This adjustment affects the sales tax that commercial real estate owners charge and receive from tenants including commercial office space, retail, warehouses and specific self-storage units. Note that it only applies for rental periods that begin on or after January 1, 2020.
Which Conditions Apply to Commercial Sales Tax Change?
Real property leases are taxed on base rent as well as other payments as part of the lease, including maintenance fees, property taxes, and utilities. It is the responsibility of the property owner to collects this tax from tenants.
The Following Conditions Apply To This Tax Change:
- Commercial rental properties that are located in Florida and are subject to the state sales tax. This includes all types of commercial properties, such as retail stores, offices, warehouses, and manufacturing facilities, that are leased or rented to a tenant for the purpose of conducting a business or commercial activity.
- The commercial rental tax rate only applies to the state sales tax portion of the tax. This means that the local option taxes that are imposed by some counties and municipalities in Florida may still apply and are not affected by the state rate reduction.
- Only to rental periods that began on or after January 1, 2020. For example, if a commercial property was leased out before January 1, 2020, and the rental period extends into 2020, the reduced rate would only apply to the portion of the rental period that occurred on or after January 1, 2020.
- It is not retroactive. This means that landlords and property managers are not required to refund any portion of the tax that was collected prior to January 1, 2020.
- Both new and existing leases are subject to renewal or renegotiation on or after January 1, 2020. This means that if a commercial lease was signed prior to January 1, 2020, but is subject to renewal or renegotiation on or after that date, the reduced rate would apply to the renewed or renegotiated lease.
- Landlords and property managers are responsible for collecting and remitting the appropriate taxes to the state and any applicable local jurisdictions. Failure to do so can result in penalties and interest charges.
- Landlords and property managers should consult with a qualified tax professional to ensure compliance with all applicable tax laws and regulations, and to determine the exact amount of tax owed based on the reduced rate. This is particularly important for commercial properties that are subject to both state and local option taxes, as the rates may vary depending on the location of the property.
It is important to note that while the state commercial rental tax rate has been reduced, landlords and property managers are still responsible for collecting and remitting the appropriate taxes to the state and any applicable local jurisdictions. Failure to do so can result in penalties and interest charges.
What Isn’t Covered Under the Commercial Sales Tax Change?
Standard tax rates apply for common landlord charges, including parking, janitorial, security and pest control services. These services are essentially “resold” to tenants and are not considered part of the commercial sales rate provisions. The storage or parking of motor vehicles, boats and aircraft are taxed at a 6% state rate and are also not subject to the commercial sales tax rate discussed in this blog.
Examples Of What Is Not Covered:
- Residential rental properties: Only to commercial rental properties, defined as any property leased or rented to a tenant for the purpose of conducting a business or commercial activity. Residential rental properties, such as apartments and single-family homes, are not subject to the commercial rental tax and are not affected by this tax change.
- Short-term rentals: This does not apply to properties that are rented for less than six months. Properties that are rented for short-term stays, such as vacation rentals, are subject to a different tax rate and are not affected by the commercial rental tax reduction.
- Non-commercial properties: Properties that are used for non-commercial purposes, such as government buildings, schools, and religious institutions, are not subject to the commercial rental tax and are not affected by this tax change.
- Sales tax on the sale of commercial property: Only to the tax on commercial rental income. It does not apply to the sales tax on the sale of commercial property. Sales tax on the sale of commercial property is still subject to the state sales tax rate of 6%, unless a different rate is specified by law.
- Local option taxes: While the state commercial rental tax rate has been reduced, local option taxes, which are imposed by some counties and municipalities in Florida, may still apply and are not affected by the state rate reduction. The local option tax rate varies depending on the location of the property.
Contact Us for More Information
Tax rates change regularly. It is good to keep up with adjustments on the tax code in order to prepare your tenants and yourself for any adjustments that could affect your business relationship. If you need guidance in the commercial rental market, contact the attorneys at the Law Offices of Cipparone and Cipparone. We specialize in Real Estate and Business Law.
**This blog is for general informational purposes only. Cipparone & Cipparone, P.A. does not distribute legal advice through this blog. As such, this blog does not constitute legal or other professional advice, and no attorney-client relationship is created between the reader and Cipparone & Cipparone, P.A.Tags: Business Law, real estate, Tax Law