The state of Florida collects a sales tax on commercial real property leases. Unfortunately, not all landlords know about this tax and risk facing serious penalties.
Understanding the Florida Sales Tax on Commercial Real Property Leases
The Florida state sales tax is the tax due on the total rent charged for leasing, renting, or granting a license to use commercial real property. Taxable commercial real property leases include retail spaces, convention rooms, commercial office spaces, warehouses, and self-storage units.
The total rent includes all of the payments due and payable by the tenant to the landlord for the ability to use or reside in the real property. It also includes payments for services included in the agreement, such as common area maintenance fees, parking fees, and cleaning fees. If the tenant also makes mortgage payments or insurance payments for the landlord, those are also included in the total rent. All of these are subject to sales tax and surtax.
Subleases are also subject to a sales and use tax. If you sublease a part of your commercial real property, you must charge a sales tax on the rent you collect. You can take a credit on a pro-rated basis for the tax you pay to your landlord. Tenants who fail to pay the proper sales tax and surtax to their landlord must answer to the Department of Revenue. They may also need to pay a penalty and interest.
It is worth noting that the tax also applies to transactions between related persons or entities. Even corporations that are renting or leasing out the commercial real property to a subsidiary must pay this tax.
What Are the Florida Sales Tax Rates for Commercial Tenants?
For the year 2022, the commercial lease sales tax rate in Florida is still at 5.5%.
Not too long ago, the Governor passed Senate Bill 50, which provided a way to lower the rate for sales tax when it comes to commercial real property leases from 5.5% to 2%.
However, this could only happen under the condition that Florida’s Unemployment Trust Fund goes back to pre-pandemic levels. Since the fund is not expected to reach those levels this year, the sales tax rate will likely remain at 5.5% — the same as the year 2021.
Exemptions for Florida State Sales Tax for Lease of Commercial Real Property
There are some tax exemptions for specific types or uses of real property. For instance, if a property is assessed by the county property appraiser as agricultural property, it is exempt from sales tax. The same goes for real property that is rented or leased to nonprofit organizations or governmental entities that possess a current Florida Consumer’s Certificate of Exemption. You will find other exemptions under Section 212.031 of the Florida Statutes.
County Discretionary Sales Surtax
Commercial property leases pay a discretionary sales surtax on top of the Florida state sales tax. Each county imposes its own discretionary sales surtax rate. Owners have to follow the rate of the county where the real property resides. Additionally, there is no cap on the amount of surtax for leasing, renting, or license to use commercial real property.
Counties have different tax rates for discretionary sales surtax. For instance, Hillsborough County, Duval County, and Osceola County have a tax rate of 7.0%. Lee County, Orange County, and Volusia County, on the other hand, have a tax rate of 6.0%. Most counties, though, have a 6.5% tax rate. These include the counties of Alachua, Brevard, Broward, Flagler, Glades, Lake, Manatee, Marion, Miami-Dade, Palm Beach, Pasco, Pinellas, Polk, Santa Rosa, Sarasota, Seminole, and St. Lucie.
Who Must Pay Tax on Commercial Real Property Leases?
Those who must register with the Department of Revenue and pay tax include:
- Anyone who leases, rents, or grants a license to others to use commercial real property
- Any agent who accepts rental payments on the property owner’s or property lessor’s behalf
Registration, reporting, and payments may be made online through the Department of Revenue’s website. All you have to do is go through the questions which will help you identify your tax obligations. Alternatively, you can manually fill out a Florida Business Tax Application (Form DR-1) for each commercial real property.
Those who register will receive via mail two things:
- A Certificate of Registration (Form DR-11)
- A Florida Annual Resale Certificate for Sales Tax (Form DR-13)
Normally, paying taxes and filing returns electronically will require you to enroll with the Department of Revenue. However, enrollment is not necessary when it comes to paying or filing sales tax.
How to File and Pay Florida Sales Tax on Commercial Real Property Leases
The Department of Revenue provides an easy way to file returns and pay your taxes online. You can also pay any applicable surtax electronically. The deadline for returns and payments are on the 1st and late after the 20th day of the month after each reporting period. This applies to all taxpayers, whether you file on a monthly, quarterly, or yearly basis.
If the 20th falls on a weekend or holiday, you can file your returns on the first business day after the 20th. Postmarked payments or payments delivered in person on the first business day after the 20th are also considered on-time payments.
Keep in mind that you must still file a tax return even if you don’t owe any sales tax.
When paying electronically, you have to begin your electronic payment before 5 p.m. ET on the business day before the 20th. You will receive a confirmation number, which you must note and keep in your records.
Late payments or returns will face a monetary penalty of 10% of the amount of tax owed. The minimum penalty, though, is $50. You may incur this penalty even if you don’t owe any tax.
The Need for Professional Assistance
It is not always easy to manage your returns and sales tax on commercial real property leases. This is especially true if you have other responsibilities to fulfill. Fortunately, a property management company can step in to help.
A property management company can take care of all your rental properties. The company can collect rent, screen tenants, field tenant concerns, oversee maintenance and repairs, and many more. Most companies also offer tax services, including filing tax returns and making timely payments.
Alternatively, you can use property management software. There is also software that facilitates e-filing. The Florida Department of Revenue provides a list of approved software vendors.
Landlords often have trouble understanding sales tax on commercial real property leases. If accounting and taxes aren’t your strong suit, it is best to ask for help from a property management company or an accountant. That way, you can keep up with your tax obligations and avoid any interest or penalties.
If you’re in need of a property management company, start browsing Florida Property Management’s online directory today!