June Brings Significant Sales Tax Savings For Florida Commercial Real Estate Tenants. Florida, known for its sunny climate and attractive real estate market, has long been a sought-after destination for businesses and individuals alike. However, as we previously reported, 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, the state tax was reduced to 4.5%. On June 1, 2024 the state sales tax will be further reduced, which will 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 4.5% as of December 1, 2023. On June 1, 2024 the state will reduce the sales tax rate on commercial real estate lease payments, which include base rent and additional rent, from 4.5% to 2.0% for payments received for occupancy periods beginning on or after June 1, 2024.
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 from 0.5% to 1.5%. For instance, in Hillsborough County, the surtax is 1.5%, which brings the total sales tax rate to 3.5%. In other counties like Pinellas, Polk, Lake, Manatee, Sarasota, and Pasco, the surtax is 1%, resulting in a total sales tax rate of 3.0%. 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
While all landlords are required to collect state and local sales taxes and remit them to the state, due to accounting or other errors, this new reduction in local sales taxes may not be reflected in your June 2024 rental invoice. It is important that starting in June, you review your rental invoice carefully to make sure the sales tax reduction is reflected in your invoice. Note that rental charges paid on or after June 1,2024 for rental periods prior to June 1, 2024, are subject to the current 4.5% state sales tax plus any local tax. Rental charges paid prior to June 1, 2024, for rental periods on or after June 1, 2024, are subject to the lower 2% sales tax plus any discretionary local tax. Therefore, if you prepaid rent and sales taxes prior to June 1, 2024, for rental periods after June 1, 2024, you may be due a sales tax refund.
In conclusion, Florida’s decision to further reduce the sales tax rate on commercial real estate leases to 2%, 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 this additional sales tax reduction, 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