Legal Alert: State of Florida Reduces Sales Tax Rate for Commercial Rental Properties

Florida State Sales Tax Rate for Real Property Slashed Down to 2%

In a move welcomed by many business owners, the State of Florida is lowering the sales tax rate for commercial rental properties down from 4.5% to 2% effective June 1, 2024. This change follows a prior increase meant to help replenish the Department of Commerce’s depleted reemployment assistance trust fund. It’s hoped that the reduction will help Florida stay competitive and bring much needed relief to business owners dealing with rising inflation and rent costs. 

Who Needs to Pay the Florida Sales Tax on Commercial Rental Property?

Florida imposes a state sales tax on rent charged for renting, leasing, letting, or granting a license to use commercial rentals, with only a few exceptions (Florida Statutes § 212.031). This tax only applies to rent paid by commercial tenants and will not impact the 6% sales tax imposed on tangible personal property and certain services. There may also be additional local discretionary sales surtaxes to pay to the county where the commercial rental property is located, too.

Also known as real property, the types of commercial rental property subject to Florida’s sales tax includes:

• Commercial office or retail spaces
  
  
• Warehouses
  
  
• Self-storage units
  
  
• Mini-warehouses

What Costs Are Included in Florida’s Sales Tax for Commercial Rental Properties?

When assessing Florida’s sales tax for commercial rental properties, the total rent will include all consideration due and paid by the tenant to the landlord. This includes services such as:

• Maintenance charges for common areas

• Customer parking

• Janitorial services

It will also cover any payments made on behalf of the landlord, such as:

• Mortgage payments

• Ad valorem taxes (whether paid to the landlord or to the county tax collector’s office)

• Insurance

For more information, you can check out the Florida Department of Revenue’s brochure here.

Are There Any Exemptions to Paying Florida’s Sales Tax on Commercial Rental Properties?

Florida’s commercial rental property sales tax is broad in its scope, but some exemptions include:

• Rentals/leases for living, sleeping, or housekeeping accommodations for six months or less (known as “transient rentals”);

• Parking or storage spaces for motor vehicles in parking lots or garages;

• Docking or storage spaces for boats in boat docks or marinas; and

• Tie down or storage space for aircraft at airports.

When Will the Reduction to Florida’s Sales Tax on Commercial Rental Properties Take Effect?

The State of Florida’s new sales tax reduction for commercial rental properties will kick in on June 1, 2024. However, it’s important to know that the reduction will be applied based on the time that the tenant occupied or was allowed to occupy the property.

In other words, the new sales tax for Florida commercial rental properties will apply to payments made before June 1, 2024, if the tenant also occupies or is entitled to occupy that location after the effective date. Payments made after June 1, 2024, for tenancy that occurred from December 1, 2023, to May 31, 2024, will still be subject to the old rate.

How Can I Register My Florida Business to Pay Sales Tax on Commercial Rental Properties?

The State of Florida requires that the property owner or anyone else collecting and receiving rental payments on a property owner’s behalf must register to pay sales tax for commercial rental properties. Like most things these days, this can be done online by visiting the State’s DoR online. This can also be done using a hardcopy of the Florida Business Tax Application (Form DR-1). Keep in mind, however, that a separate application must be completed for each location.

A Certificate of Registration (Form DR-11) and a Florida Annual Resale Certificate for Sales Tax (Form DR-13) will be mailed out upon successfully registering with the DoR. Unless you are filing electronically, paper returns will also be provided. Your Certificate of Registration must be conspicuously displayed at your place of business.

How Do I File and Pay Florida’s Sales Tax on Commercial Rental Properties?

Paying Florida’s sales tax on commercial rental properties, as well as any necessary surtax, can either be paid online through the DoR’s website or by using software purchased from a software vendor.

Local Discretionary Sales Surtax / Will this impact….

This reduction for state sales tax on commercial rental properties won’t affect the local discretionary sales surtax imposed by many Florida counties. Starting June 1, 2024, the new combined sales tax and discretionary sales tax rate for certain Florida counties will be:

Forming a Florida Limited Liability Company (LLC) for Commercial Rental Properties

When working with Florida commercial rental properties, it’s important to take every step possible to shield yourself from liability. Otherwise, your business’s debts and obligations could lead to the loss of your own personal assets. One of the best ways to prevent this from happening is by forming a Florida limited liability company for your commercial rental property, which you can learn more about by reading our insight here.

If you’re ready to form a Florida LLC for your commercial rental property, then click here to get a quote for your project or call our corporate law firm at 727-279-5037.