Florida Legislature Tables Tax Relief for Commercial Tenants
With the close of the 2014 legislative session earlier this month, the Florida legislature has declined to extend tax relief to tenants of commercial real property here in the Sunshine State. A target of much criticism from Governor Rick Scott, Florida businesses and real property and retail industry groups such as Florida Realtors and the Florida Retail Federation, Florida Statutes Section 212.031 requires commercial tenants to pay sales tax in the amount of six percent (6%) of the total rent charged to the tenant under their lease. This sales tax is not limited to monthly payments specifically described as rent; additional rent and any common area maintenance charges or fees are considered rent and are thus also subject to the tax. In addition to the state sales tax of six percent, commercial tenants are also responsible for paying any discretionary sales surtax required by the county in which the real property is located. As a result, many Florida businesses end up paying between six and a half percent (6.5%) and seven and a half percent (7.5%) sales tax on their total rent obligations, and it is estimated that the State of Florida receives around $1.4 billion in yearly revenue from the tax.
Florida is currently the only state in the country that imposes a sales tax on commercial rent directly at the state level, and prior attempts to reduce or repeal the tax outright have failed. The 2014 legislative session saw bills proposed in both the Florida House of Representatives and the Florida Senate geared toward reducing the amount of sales tax required on commercial rent under Section 212.031. Sponsored by Representative Greg Steube, House Bill 11 sought to amend Section 212.031 to provide for a gradual reduction of the state sales tax obligation on commercial rent by one percent (1%) per year commencing on January 1, 2015 and culminating with the elimination of the tax entirely on January 1, 2020. House Bill 11 was referred to the House Finance & Tax Subcommittee on October 7, 2013, where it remained until the end of the 2014 legislative session. Although House Bill 11 received its first required reading on March 4, 2014, it was never presented for a hearing or subsequent readings during the 2014 legislative session.
Interestingly, a far more conservative tax relief measure similarly failed to gain traction in the Florida Senate. Sponsored by Senator Dorothy Hukill, Senate Bill 176 would have permanently reduced the statutory tax from six percent (6%) to five percent (5%), effective January 1, 2015.Â As with House Bill 11, Senate Bill 176 was never presented for a hearing. Instead, the bill died in the Senate’s Committee on Commerce and Tourism on May 2, 2014. The Florida Senate’™s rejection of the relatively conservative Senate Bill 176 illustrates the legislature’s overall reluctance to seriously consider reducing or eliminating Florida’s sales tax on commercial rent.
The failure of both House Bill 11 and Senate Bill 176 should not come as a surprise when considered in the context of the 2014 legislative session as a whole, which saw the reduction of various state taxes and fees in furtherance of Governor Scott’s “It’s Your Money Tax Cut Budget”. Specifically, in passing Senate Bill 156 and House Bill 5601, the legislature cut roughly $500 million in taxes and fees by reducing motor vehicle license renewal registration fees, establishing sales tax holidays, and providing several new sales tax exemptions and insurance premium tax cuts. Having met its goal of $500 million in tax and fee cuts, it appears that the Florida legislature did not want to reduce, let alone eliminate, another source of state revenue. Despite the recent failure of both House Bill 11 and Senate Bill 176, the legislative debate over sales tax on commercial rent appears to be far from settled. Given the recent and previous attempts to reduce or eliminate the tax, we expect to see Florida lawmakers propose similar legislation aimed at reducing or eliminating Florida’s sales tax on commercial rent in the 2015 session.
If you would like to discuss your commercial lease or any tax issues related to your business, please feel free to call and schedule an appointment with our Real Estate, Finance & Land Use Group or our Business & Tax Law Group.