Florida is the only state in the U.S. that imposes a sales tax on commercial rent. For this reason, all owners of commercial investment properties in the state must collect the right amount of sales tax in addition to the rent paid. At the start of 2018, the state legislature reduced commercial rent sales tax from the statewide general sales tax of six percent to 5.8 percent. Earlier this year, Governor Rick Scott signed Senate Bill 620, further reducing the sales tax for commercial rent to 5.7 percent. The new rate goes into effect for all occupancies on or after January 1, 2019.
Considerations for Commercial Property Owners
If you own commercial rental properties in Florida, you should already be collecting sales tax from your renters. As we enter the New Year, know which tax rate to collect and when.
- If your renter pays you in January for occupancy in December, you should collect the 2018 rate of 5.8 percent
- If your renter paid ahead in December for January occupancy, you should collect the new 2019 rate of 5.7 percent
Additionally, know if you live in an area that charges an additional local-option surtax. For example, Orange County has a 0.50 percent discretionary surtax rate, so commercial property owners in Orlando would need to charge a total of 6.2 percent sales tax on all rent. Surtaxes can be as high as two percent in certain areas of the state, so be sure to know exactly how much to add to the rent you collect.
The tax is not only on the base rent amount, either. All consideration for occupancy is considered when calculating sales tax, which can include property taxes, charges for common-area maintenance, and any other additional rent or fees under the lease.
Commercial landlords should be sure their invoice software is updated to reflect the changes in statewide rate for all invoices on or after January 1st.
If you’re purchasing a commercial property (or considering it), or if you’re entering into a lease with a new commercial tenant, make sure the agreement reflects the correct amount of sales tax you’ll need to collect. It’s always wise to consult with a real estate attorney who can help ensure the calculations and review the terms of your lease agreements for accuracy based on your situation.
Notes for Non-Commercial Landlords
There are many non-commercial rental properties subject to Florida sales tax that will not enjoy a rate reduction.
- Transient rental properties (residential properties rented for six months or fewer
- Parking lots
- Vessel docking facilities
- Aircraft hangars
Rent for the above will still be taxed at six percent and transient rentals may also be subject to a local tourism-development tax, which can be substantial depending on the area.
Every investment property owner should make sure none of the sales tax exemptions apply to them (as there are several). If not, be sure to collect the right amount of sales tax in the coming year. If you have any questions or concerns, feel free to discuss them with the experienced Orlando real estate attorneys at Walsh Banks Law.