Florida tenants and real estate license holders can expect a significant reduction in their sales tax burden starting June 1, 2024. In a move that reflects the state’s ongoing efforts to create a more business-friendly environment, the state sales tax rate levied on commercial rental property under Florida Statute (FS) Section 212.031 is set to decrease from 4.5% to just 2.0%.
What is commercial leasing?
Commercial rentals refer to a variety of real estate contracts, including leases or licenses to use real estate such as commercial offices, retail spaces, warehouses, self-storage facilities, etc. The term “total rent charged” includes all payments owed by a tenant in exchange for the right to use or occupy the property.
Understanding Local Option Discretionary Sales Additional Taxes
It is important to clarify that the locally optional discretionary sales surtax, determined by the county in which the property is located, remains in effect. This surtax is added to the total rent charged, and the amount of tax due is based on the period of occupancy provided to the tenant, not on a payment schedule.
Clarification of when tax rates will be applied
The Department of Taxation has detailed guidelines regarding the timing of payments and how occupancy affects the applicable tax rate.
Rent paid for the period from December 1, 2023 through May 31, 2024 will be taxed at the current 4.5% state sales tax plus the discretionary sales surcharge, even if the payment is made on or after June 1, 2024. Conversely, payments made before June 1, 2024 that cover occupancy periods beginning on that date will be subject to the lower 2.0% state sales tax rate in addition to any applicable discretionary sales surcharge.
Exceptions to deductions
The reduced rate does not apply to all types of rentals. Specifically excluded are “temporary rentals” – short-term accommodation, usually for less than six months. It also excludes car parking or storage areas, boat mooring or storage spaces, and aircraft mooring or storage areas.
Taxpayer Resources
To ensure proper tax reporting of commercial rental property, the Florida Department of Taxation has resources available on its website at floridarevenue.com/forms. Taxpayers can access comprehensive guidance by navigating to the Sales and Use Tax section and selecting “Sales and Use Tax on Rental, Lease or Permit of Commercial Real Property (GT-800016).”
In conclusion, this tax rate reduction will be a tangible benefit to businesses leasing commercial space in Florida. Businesses are encouraged to take advantage of this financial relief and reallocate the savings to growth and development initiatives. As with all tax-related matters, consult with a Marcum tax professional to fully understand the impact of these changes and ensure you are in compliance with state law.