Significant Sales Tax Reductions In Store For Florida commercial Real Estate Tenants in 2024. Florida, known for its sunny climate and attractive real estate market, has long been a sought-after destination for businesses and individuals alike. However, the state has faced a competitive disadvantage when it comes to attracting out-of-state tenants due to a unique tax burden – sales tax on commercial real estate leases. As of December 1, 2023, there has been a reduction in this tax with further reductions to follow, all of which could potentially make Florida even more appealing to businesses.
Florida is the only state in the United States that imposes a sales tax on commercial real estate leases, a factor that leaves Florida at a competitive disadvantage in attracting potential tenants.
The state sales tax rate for commercial real estate leases was set at 5.5%. In December 2023 the state reduced the sales tax rate on commercial real estate lease payments, which include base rent and additional rent, from 5.5% to 4.5% for payments received for occupancy periods beginning on or after December 1, 2023.
Tax reductions in the sales tax rate have been welcomed by both property owners and potential tenants.
The reduction in sales tax makes Florida’s commercial real estate market more competitive and attractive for businesses looking to establish a presence or expand their operations in the state. By lowering the tax burden on commercial leases, Florida aims to level the playing field and encourage businesses from out of state to consider Florida as a prime location for their operations.
Points to Consider
It’s important to note that the sales tax applies not only to the base rent but also to other payments that tenants must make as a condition of their occupancy. This includes common-area maintenance fees, property taxes, and utilities outlined in the lease agreement.
In addition to the state sales tax, property owners are also required to collect any county-imposed sales surtax on the total rent charged. The amount of this surtax varies by county. For instance, in Hillsborough County, the surtax is 1.5%, which brings the total sales tax rate to 6%. In other counties like Pinellas, Polk, Lake, Manatee, Sarasota, and Pasco, the surtax is 1%, resulting in a total sales tax rate of 5.5%. One crucial point to consider is that these sales taxes are not typically included in the rental rates quoted by landlords. This means that commercial tenants need to be aware of and account for these sales taxes when preparing their annual budgets. Failure to do so could result in unexpected financial burdens that negatively impact a tenant’s bottom line.
Moving Forward
Looking ahead, there is the potential for further reductions in Florida’s sales tax on commercial real estate leases. If Florida’s Unemployment Trust Fund is replenished to the pre-pandemic level, there could be an additional 2.5% reduction in the state sales tax rate in the third quarter of 2024. This would be a significant step in making Florida an even more attractive destination for businesses and tenants from out of state.
In conclusion, Florida’s decision to reduce the sales tax rate on commercial real estate leases in December 2023 is a positive development for the state’s commercial real estate market. This change makes Florida more competitive and appealing to businesses considering relocation or expansion. With the potential for further reductions in the sales tax rate in the near future, Florida is positioning itself as a top choice for businesses seeking a tax-friendly environment and a strategic location for their operations.
At Mobiliti CRE we focus 100% on representing tenants with relocations, expansions, contractions, and subleases throughout Tampa Bay and the entire West Coast of Florida. We also assist businesses that are looking to purchase office, medical office, flex and industrial Reach out to us for assistance with all of your commercial real estate needs at (813)-300-2227 or email us at pam@mobiliticre.com