Florida Commercial Rent and License Fees May See Decrease Under New Law

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Unlike most states, Florida imposes a sales tax on commercial rent or license fees, regardless of the length of the term. During the most recent legislative session, the Florida legislature passed and Gov. Ron DeSantis signed into law a bill that might adjust the sales tax rate once the unemployment compensation trust fund is replenished to a certain level. While this provides hope for an eventual reduction in sales tax for commercial leasing parties, the next steps are more complicated and should be reviewed carefully.

Current State and Discretionary Sales and Use Tax

Currently, pursuant to Florida law, there is a statewide tax of 5.5 percent on any commercial rent or license fees for the use of commercial real property, regardless of the length of the term of the lease. The tax is imposed not only on base rent but also on any other "rent" amounts, such as percentage rent, common area maintenance charges, insurance and other "pass-through" expenses paid by a tenant to a landlord. Generally, the custom is for the tenant to pay such tax. In addition to the state tax, counties can impose a discretionary sales surtax on such amounts. These rates vary from county to county and from year to year. Some counties have permanent surtaxes, while others have enacted surtaxes which have a fixed life-span and can expire.

Impact of New Law

On April 19, 2021, DeSantis signed into law Senate Bill 50. Most of the bill was focused on expanding sales tax on tangible goods to include remote sellers who collect more than $100,000 per year (an "internet sales" tax). Among other terms, Senate Bill 50 provides that the state sales tax rate on commercial rent and license fees is eligible for a decrease once the state's unemployment compensation trust fund balance exceeds the pre-COVID-19 pandemic balance of approximately $4,071,519,600. As of the first day of the second month following the Office of Economic and Demographic Research (EDR) certifying the trust fund balance has reached this threshold, the state tax rate on commercial rent or license fees will decrease from 5.5 percent to 2.0 percent. Since the timing of the decrease will be dependent on the status of the economic recovery from the COVID-19 pandemic, tenants should consult a real estate attorney to confirm the appropriate sales tax rate in place from time to time.

Next Steps

Given that the tax rate on rent or license fees for use of commercial real property depends on the jurisdiction and the timing of the re-funding of the state's unemployment compensation trust fund, further review will be necessary from time to time to determine the applicable tax rate.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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