April 11, 2024

Significant Sales Tax Rate Reduction on Commercial Rentals in Florida Starting June 2024

By John Bonk, Partner, National Co-Leader - State & Local Tax

Significant Sales Tax Rate Reduction on Commercial Rentals in Florida Starting June 2024 State & Local Tax

Florida tenants and those who hold licenses to use real property can look forward to significantly reducing their sales tax obligations come June 1, 2024. In a move that reflects the state’s ongoing efforts to create a more business-friendly climate, the state sales tax rate imposed on commercial rentals under section 212.031, Florida Statutes (F.S.), is set to drop from 4.5% to a mere 2.0%.

What is Considered a Commercial Rental?

Commercial rentals refer to various real estate agreements, including leases and licenses to use properties such as commercial offices, retail spaces, warehouses, and self-storage facilities. The term “total rent charged” encompasses all payments the tenant is obliged to make in exchange for the right to use or occupy the property.

Understanding Local Option Discretionary Sales Surtax

It’s important to clarify that the local option discretionary sales surtax, determined by the county where the property is located, remains in effect. This surtax is added to the total rent charged, and the tax liability is based on the occupancy period provided to the tenant rather than on the payment schedule.

Clarification on the Timing of Tax Rates

The Department of Revenue has detailed guidelines on how the timing of payments and occupancy affects the applicable tax rate:

  • Rent payments made for the period of December 1, 2023, through May 31, 2024, will be taxed at the current rate of 4.5% state sales tax, with the addition of the discretionary sales surtax, even if these payments are made on or after June 1, 2024.
  • Conversely, any payments made before June 1, 2024, which cover the occupancy period starting from this date, will enjoy the lower 2.0% state sales tax rate alongside any applicable discretionary sales surtax.

Exceptions to the Rate Reduction

The reduced tax rate does not extend to all types of rentals. Specifically excluded are “transient rentals,” short-term accommodations usually lasting six months or less. Also excluded are parking and storage for motor vehicles, boat docking and storage spaces, and tie-down or storage for aircraft.

Resources for Taxpayers

To assist in ensuring proper tax reporting for commercial rentals, the Florida Department of Revenue has made resources available on its website at floridarevenue.com/forms. Taxpayers can navigate to the Sales and Use Tax section and select the “Sales and Use Tax on the Rental, Lease, or License to Use Commercial Real Property (GT-800016)” for comprehensive guidance.

In conclusion, this tax rate reduction represents a tangible benefit for businesses that lease commercial spaces in Florida. Businesses are encouraged to leverage this financial relief and reallocate savings toward growth and development initiatives. As with all tax-related matters, consult with Marcum tax professionals to fully understand the implications of these changes and ensure they remain compliant with state laws.