Effective January 1, 2018 – Florida Reduces the Sales Tax on Commercial Rentals

On November 13, 2017, the Florida Department of Revenue released a Tax Information Publication (TIP No: 17A01-14), reminding taxpayers that effective January 1, 2018 there will be a reduced sales tax rate imposed on commercial rent.

In June 2017, Florida lawmakers decided to decrease the sales tax imposed on renting, leasing, letting, or granting licenses to use real property from 6 percent to 5.8 percent. For these purposes, the term “real property” includes commercial office space, commercial retail space, warehouses, mini-warehouses, and self-storage units; however, the term does not include the rental of parking and/or storage spaces for motor vehicles, boats or aircrafts.

Under the new statute, “the tax rate in effect at the time that the tenant or person occupies, uses, or is entitled to occupy or use the real property is the tax rate applicable to the [taxable transaction], regardless of when a rent or license fee payment is due or paid.” In other words, “the applicable tax rate may not be avoided by delaying or accelerating rent or license fee payments.” In effect, a payment made in December 2017 on commercial rental fees for January 2018 is subject to the reduced rate, whereas, a January 2018 payment for commercial rental fees in 2017 would be subject to the old 6-perent rate.

An important consideration which must be factored into the determination of the applicable sales tax rate not mentioned in the statute is the impact of local surcharges. In Florida, some localities (e.g. Miami-Dade County) apply a sales tax surcharge—generally about 1 percent. In such circumstances, the 5.8 percent sales tax rate must be increased to include the local surcharge. For example, in Miami-Dade County, the reduced sales tax on commercial rent as of January 1, 2018 would be 6.8 percent (5.8 percent plus 1 percent).

Since this reduction seems to be part of a larger goal to eliminate the sales tax on commercial rentals, the Tax Professionals at Marcum will continue to monitor and provided updates on any further reductions.

Please contact your dedicated Marcum professional to address any questions regarding this notice or any other tax matter.