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Florida Reduces State Sales Tax on Commercial Real Estate Leases for 2019 by Karen A. Lake, CPA

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Posted on January 15, 2019 by Karen Lake

Effective Jan. 1, 2019, Florida’s sales tax rate on the total rent that commercial real estate owners charge and receive from tenants is 5.7 percent, a decrease from 5.8 percent in 2018, and 6.0 percent in 2017.  Real property rentals subject to the reduced rate include commercial office space, retail, warehouses and certain self-storage units, excluding storage for motor vehicles, boats and aircraft.

It is important for commercial real estate owners to recognize that the applicable sales tax rate is based on the timing of when the tenant occupies or has a right to occupy the property and not the month or year in which the tenant pays the rent. Therefore, the 5.7 percent tax rate applies only to rental charges a tenant pays for occupancy on or after Jan. 1, 2019.  Should a tenant pay rent after Jan. 1, 2019, for a rental period prior to the New Year, the applicable sales tax rate would be 5.8 percent plus any applicable discretionary sales surtax. Similarly, rent a tenant paid in December 2018 for occupancy in 2019 would be subject to the new, reduced rate of 5.7 percent.

Real property leases are taxed on base rent as well as other payments tenants must make as a condition of their occupancy. This includes common-area maintenance fees, property taxes and utilities that a lease agreement specifies are the responsibility of the tenants.  In addition, it is the responsibility of the property owner to collect from tenants any County imposed local-option sales surtax on the total rent charged. Depending on the County where the property is located, landlords may be subject to higher surtaxes in 2019 as detailed in the graph below:

Property owners who send invoices to tenants for rental periods after Jan 1, 2019, must account for both the 0.1 percent reduction in state tax rates state tax rate as well as any changes in local option tax rates for 2019.

The advisors and accountants with Berkowitz Pollack Brant’s State and Local Tax (SALT) practice work with individuals and businesses to understand and comply with tax policy and sales tax compliance.

About the Author: Karen A. Lake, CPA, is state and local tax (SALT) specialist and an associate director of Tax Services with Berkowitz Pollack Brant, where she helps individuals and businesses navigate complex federal, state and local tax laws, and credits and incentives. She can be reached at the firm’s Miami office at (305) 379-7000 or via email at info@bpbcpa.com.