In a move that is poised to benefit businesses across Florida, the state government has announced a significant reduction in the commercial rent sales tax, which will be lowered from the current rate of 4.5% to 2.0% starting June 2024. This change marks a substantial shift in Florida’s fiscal policy and provides a potentially lucrative financial break for companies leasing commercial property in the state.
National Lease Advisors provides lease administration to companies with a portfolio of real estate leases. Here’s what tenants need to know about this upcoming change and how we’re helping our clients with Florida locations.
Overview of the Tax Reduction
Florida remains one of the few states to impose a sales tax on commercial leases, which has long been a point of contention among business owners. The upcoming reduction to 2.0% represents the culmination of efforts to lessen operational costs for businesses and make the state an even more attractive location for commercial activities.
In December 2023, FL reduced the commercial lease sales tax from 5.5% to 4.5%. The decrease in the sales tax from 4.5% to 2.0% was finalized after extensive lobbying by business groups who argued that the tax was burdensome and put Florida at a competitive disadvantage. This reduction will potentially save Florida businesses hundreds to thousands of dollars each year, depending on their rent expenses.
In addition to the 2.0% state tax, each county also has a separate commercial rent tax between .5%-2.0%. The effective tax rate will range from 2.5%-4.0% depending where in the state the property is located.
How We’re Helping Clients
As the implementation date of June 2024 approaches, we’re taking several steps to prepare our lease administration clients for the change and recommend tenants take the following steps:
- Review Current Leases: Tenants should examine their existing lease agreements to understand how taxes are addressed and who is responsible for their payment. In most cases they will be paid to the landlord and then the landlord pays to the state and county, however the lease may have the tenant paying directly. This is crucial for identifying how the tax reduction will affect their financial commitments.
- Update Rent Schedules: With the reduction in tax, tenants should update their monthly rent based on the new effective tax rate. The tax is applied to both base rent and CAM charges, so the tax on both should be updated.
- Consult with Landlords: Some landlords may not be familiar with the tax rate change. It’s advisable for tenants to discuss the upcoming changes with their landlords to confirm the reduced tax rate is updated in their lease system.
- Stay Informed: As with any tax-related changes, nuances and additional regulations may be issued as the implementation date nears. Keeping abreast of any updates from the Florida Department of Revenue is essential.
Conclusion
The reduction of Florida’s commercial rent sales tax from 4.5% to 2.0% in June 2024 presents a notable opportunity for business tenants. By preparing adequately, tenants can ensure they fully benefit from the reduced tax burden, potentially boosting their business operations and contributing further to the vitality of Florida’s economy. This tax cut is a welcome change for the business community and reinforces Florida’s commitment to fostering a business-friendly environment.