Florida’s Commercial Rental Properties to Experience Significant Sales Tax Rate Drop
By John Bonk, Partner, National Co-Leader - State & Local Tax
Businesses operating in Florida’s commercial rental properties, including retail stores, offices, warehouses, and industrial spaces, should be aware of an upcoming change that will impact their operations. Effective December 1, 2023, the sales tax rate for commercial rentals will decrease from 5.5% to 4.5%. This article provides information on the new sales tax rate, its application to rental payments, and the compliance steps businesses need to take.
Starting from December 1, 2023, all rental payments for commercial properties in Florida will be subject to the reduced sales tax rate of 4.5%. This rate will apply regardless of any advanced payments made before the implementation date. For example, if a commercial tenant pays their January 2024 rent in October 2023, they will be taxed at the newly reduced rate of 4.5%. However, rent for November 2023 will still be taxed at the previous rate of 5.5%, even if paid in December 2023. Landlords and property management firms should promptly update their records to reflect this sales tax rate reduction for invoices related to occupancy periods starting on or after December 1, 2023.
Commercial real property rentals in Florida are subject to the state sales tax rate of 5.5%, along with any applicable discretionary sales surtax. Taxable rentals include commercial office or retail space, warehouses, convention and meeting rooms, and self-storage units. The discretionary sales surtax rate varies by county. Payments for services the tenant requires, such as common area maintenance, customer parking, or janitorial services, are also subject to sales tax and surtax. Additionally, tenant payments on behalf of the landlord, such as mortgage payments or insurance, are included in the total rent charged and subject to sales tax and surtax.
Any person who rents, leases, or grants a license for commercial real property must register with the Florida Department of Revenue. Agents receiving rental payments on behalf of property owners or lessors must also register. Each business location must have a separate registration.
It is important for businesses to comply with Florida’s sales tax requirements for commercial rental properties. Failure to register, collect, report, and pay the correct sales tax and discretionary sales surtax can result in criminal and civil penalties. Businesses should prominently display their Certificate of Registration at their commercial property location and keep accurate records of rental payments and related taxes.
Businesses operating in commercial rental properties in Florida need to be aware of the upcoming sales tax rate reduction from 5.5% to 4.5% effective December 1, 2023. This change will apply to all rental payments, regardless of advanced payments made before the implementation date. Landlords and property management firms must update their records accordingly. Additionally, businesses must understand the taxable nature of commercial real property rentals, exemptions available, and the registration process with the Florida Department of Revenue to ensure compliance with sales tax obligations.