Florida governor signs business rent tax rollback, the third in recent years

Florida is the only state in the U.S. that collects sales tax on commercial leases
By Katherine Kallergis | May 16, 2019 11:30AM

Govorner Ron DeSantis (Credit: Getty Images)

Govorner Ron DeSantis (Credit: Getty Images)

UPDATED, May 16, 3:07 p.m.: Gov. Ron DeSantis signed a law that will reduce the tax on commercial leases in Florida.

House Bill 7123, known as the business rent tax, lowers the commercial lease tax by 0.2 percent to 5.5 percent. Although the reduction is small, it marks the third such cut since 2018.

Florida is the only state in the U.S. that collects sales tax on commercial leases, according to NAIOP, the national commercial real estate development association. The state is otherwise considered a tax haven due to its lack of a state income tax.

In Florida, the commercial tax is imposed on the base rent, plus any additional rent or consideration the tenant is required to pay, said Darcie Lunsford, who has spearheaded reductions in the tax on behalf of the South Florida chapter of Herndon, Virginia-based NAIOP. It’s also applied to the tenant’s share of common-area maintenance fees and property taxes. Some Florida counties also tack on a local surtax, including Miami-Dade, Broward and Palm Beach counties.

The tax reduction becomes effective on Jan. 1, 2020 and is expected to generate annual savings of $64.5 million, according to the governor’s office. DeSantis, who won the endorsement of the Florida Realtors in his race for governor, was elected in November.

The tax applies to retail, office and industrial leases and does not include hotel or apartment leases.

Lunsford, a senior vice president at Butters Realty & Management, said reducing the tax helps to level the playing field when Florida competes for headquarters or major companies. It also “releases investment capital that companies can now use to grow our businesses, hire people, and invest in equipment,” she said.

Marvin Kirsner, a shareholder at Greenberg Traurig, said the reduction is minor. A previous bill, which did not pass, called for reducing the tax to 3.5 percent, which would have had a much bigger impact, in addition to taxing e-commerce, he said.

Still, Steven Hurwitz of Colliers International South Florida said that over time, additional rollbacks would have an impact on tenants reinvesting in their businesses and the local economy. “Any future movement definitely supports that sort of investment in our economy,” he said.

NAIOP’s Florida chapter has been lobbying the state to ratchet back the commercial lease tax for years and is hoping to wipe it out completely. Kirsner said that former Gov. Rick Scott attempted to eliminate the rent tax altogether.

“It’s definitely a senseless tax that we need to work on eradicating over time, which is what NAIOP’s been doing,” Lunsford said.

Other real estate-related bills are awaiting the governor’s signature. The Florida Legislature recently passed a bill that would make remote online notarizations legal, a move that could speed up foreign and out-of-state real estate investment in the Sunshine State.