Florida Rental Tax Difficult To Swallow
After negotiating a good rental rate on a commercial lease, new tenants in Florida often get sticker shock when they calculate their monthly bill after factoring in sales tax. F.S. 212.031 assess sales tax on the consideration paid to occupy the premises. The consideration includes rent, CAM, utilities, real estate taxes and insurance. Florida is the only state in the nation to impose a state wide sales tax on rents. Tenants who have never leased in Florida previously can generally grasp the concept of tax on the rent, but they are puzzled by the tax on CAM and outraged when they are told that they pay tax on real estate taxes. Clearly, this is a double tax. Even the tax on CAM and utilities is a double tax. However, the legislature has determined, and courts have upheld, that the sales tax is a tax on the occupancy and not on the underlying goods. Therefore, there is no double tax.
There is an exemption to payment of sales tax on utilities. If the landlord is paying taxes on the utilities, invoices CAM separately, has a separate line item for utilities on the invoice and does not mark up the price of the utilities, then there will be no sales tax due.
Why does Florida tax rent? Simply stated, Florida has no personal income tax and its corporate income tax rate is among the lowest in the United States. Florida needs to look under every cushion to find sources of tax revenues. The state has always preferred to tax tourists and businesses as much as possible. The lease tax is aimed at business and generated $1.5 billion in 2015 and is projected to generate $2 billion in 2020. Yet there are calls to eliminate the tax. Governor Rick Scott (R) proposed a 1/2% reduction in the rate in 2014. The proposal failed. The governor tried again this year, offering a 1% reduction. Again, Governor Scott’s proposal failed. However, other bills were filed. One such bill required the total elimination by phase out of the tax by 2025. The bill never got out of committee.
The critics of the tax are getting louder. Many business and real estate groups are calling on the legislature to take action in 2017 to phase out the tax. Leading the charge are BOMA, Florida Realtors, CCIM, Florida Gulf Coast Realtors, ICSC, Florida Restaurant and Lodging Association, Florida Retail Federation and NAIOP.
Proponents of eliminating the tax argue that out of state companies won’t relocate to Florida because of the tax. However, their argument does not address the income tax reasons to come to Florida which could more than offset the sales tax issues, and often do. Also, opponents to elimination of the tax counter that to offset the lost revenue, real estate taxes would go up, which would be passed on to tenants. Landlords might also see the tax savings as an opportunity to raise rents.
Perhaps a better solution to complete elimination of the rental tax would be to limit the tax to rent only and eliminate it from CAM and other charges. Tenants and industry groups would find it less offensive as the feeling of paying double tax would be off the table. The state would continue to collect the bulk of the tax and the taxpayer would receive a significant tax break. The state could more easily afford to make up this tax cut and Florida could continue to be an attractive place for companies to relocate to.
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