Florida taxation is unique in many ways, including its imposition of sales tax on commercial rentals and its slow but steady reduction in the sales tax rate in recent years. Business and/or individuals engaging in the leasing or rental of commercial real estate in Florida must understand the nuances of this law, including what is considered rental consideration and what components of a lease may be exempt from the tax base.

By way of background, in Florida, the rental, lease, or license to use commercial real property is subject to a state sales tax. This tax generally includes any consideration paid for the right to occupy or use the real estate, including base rent, additional rental consideration, and other required payments under the lease term. Any lessor of realty is required to register with the Florida Department of Revenue prior to conducting business or even entering a commercial lease.

In recent years, the sales tax rate on commercial rentals has been slowly but steadily declining. Florida’s state tax on the rental of commercial property is currently 4.5%; but the rate will be further reduced to 2% effective June 1, 2024. The reduction was originally scheduled to take effect on July 1, 2024.

Although the state rate has been reduced, the surtax will continue to apply in counties that impose a surtax. The surtax rates in 2024 range from 0.5% to 1.5%, except for Collier County, which repealed the surtax effective Dec. 31, 2023.

It is important to keep in mind that each commercial rental property location is considered a separate business and requires its own tax certificate. While landlords or their agents are typically responsible for registering, collecting, and remitting the tax, tenants could bear the tax liability if the landlord does not fulfill these collection obligations (referred to as use tax), particularly if the tenant undergoes a sales tax audit. It is critical for lessors and lessees of business rentals to review lease terms for clauses regarding sales taxes, including the measure of the tax base and the tax rate on the rental.

This tax, also known as business rental tax, includes rentals of commercial office or retail space, warehouses, self-storage units, and mini warehouses. It does not include sales and use tax on parking lots, boat docks, and aircraft hangars, as separate rules are set for these.

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Unlike most jurisdictions, Florida imposes a sales tax on commercial rent or license fees, regardless of the length of the term. Accordingly, we recommend that taxpayers relocating or opening a new location in Florida take this unique tax landscape into consideration, especially given the significant reduction in the sales tax rate.

Furthermore, lessors of commercial real estate need to be aware of the reduction in the state sales tax rate on business real estate rentals as of June 1, 2024, and update their records to account for it, keeping in mind the following:

• Sales tax is due at the rate in effect during the time the tenant occupies the real property.
• Rental charges paid on or after June 1 of 2024 for rental periods from December 2023 to May 2024 are subject to the 4.5% plus surtax.
• Rental payments paid before June 1, 2024, for periods June 2024 or after are subject to 2% plus surtax.

The reduced tax rate does not apply to all types of rentals. Transient rentals, which typically include short-term accommodations lasting six months or less, are excluded, and are subject to the 6% state tax rate, plus any discretionary surtax and local tax imposed from the Florida counties. The Local Option Transient Rental Tax Rates (Tourist Development Tax Rates) vary between 0% and 6%.

For additional information on the reduced tax rate, see the Department of Revenue’s Tax Information Publication 24A01-02.

For companies that are not in compliance with sales tax on commercial rentals, a mitigation strategy may be available. The FL DOR has a no-name voluntary disclosure and compliance program (VDCP) for eligible companies. Potentially noncompliant businesses should assess exposure and eligibility and see if the VDCP is cost-advantageous.

_{Any advice contained in this communication, including attachments and enclosures, is not intended as a thorough, in-depth analysis of specific issues. Nor is it sufficient to avoid tax-related penalties. This has been prepared for information purposes and general guidance only and does not constitute legal or professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice specific to, among other things, your individual facts, circumstances and jurisdiction. No representation or warranty (express or implied) is made as to the accuracy or completeness of the information contained in this publication, and CohnReznick LLP, its partners, employees and agents accept no liability, and disclaim all responsibility, for the consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it.}