Sales Tax on Rent In Florida

Tessa Author

Leasing space in Florida comes with unexpected costs for most - the sales tax! Find what's taxable and who pays the tax on commercial realty leases.

Sales Tax is common to most consumers in the US and Canada. However, only a few outside of Florida know that sales tax is also imposed on the rental of real property. And, although the percentages are lower than the state’s rate on consumer goods, it’s an additional cost you must consider when leasing premises in Florida.

Here’s What Tenants Need to Know

According to the Florida Department of Revenue, each sale, admission, storage, and rental in Florida is taxable unless the transaction is exempt (non-profits and such). The state’s sales tax is six percent (6%). However, effective December 1, 2023, a one-and-a-half percent (1.5%) discount applies to commercial leases, bringing us to a four-and-a-half percent (4.5%) tax rate at the state level for your store, office, or warehouse lease in Florida.

Effective June 1, 2024, the FL state sales tax rate on rent will reduce to 2% in accordance with SB 50 (2021), from the temporary reduction of 4.5% effective December 1, 2023.

Also, Florida is divided into 67 counties, and most of them (all except one) levy the discretionary sales surtax (county tax) on top of the state rate. The surtax rate ranges from half to one and a half percent (0.5% - 1.5%), and you can find the value for each county in the Surtax table published each November before the new year. See the rate for 2024 here.

The taxes are paid to the immediate lessor with your rental payment, who in turn will transfer collected taxes to the state. Failure to do so may result in penalties, interest, and criminal sanctions, so it’s important for all parties to maintain accurate records of rental payments and receipts.

What's Taxable?

Sales tax applies to the total rent payable by the tenant to the landlord for the right to use the leased space. These include payments for the following but are not limited to:

• Rental or license fee to use the premises

• Common area maintenance cost for the property

• Property taxes (yes, you pay tax on tax!)

• Utilities, exempt in some instances

• Parking

The Termination Fee is only taxable if the lessor records such charges as rental income in its books and records. This presumption can be overcome by providing sufficient documentation by either the lessor or the lessee that such charges were other than for the rental of real property. (212.031 F.S.)

The termination fee is the expense for early release from the contract, and although you may avoid paying the sales tax on it by naming it as such, there are likely lease accounting implications.

Subleasing Imposes a New Responsibility on Tenants

If you’re a tenant considering a sublease, be aware that although you might be giving up some space, you’re adding responsibilities to your ever-growing to-do list.

Subleasing doesn’t relieve the tenant from paying the taxes to the primary landlord for the entire property. Instead, you can claim a credit on the pro-rated basis of the amount you paid to the landlord when you’re remitting taxes to the state you’ve collected for the sublease. Take a look at an example below.

Suppose you lease 200 square feet from the prime landlord for $400 in Citrus county (the one without the county surtax), so the sales tax payable to the landlord is $22.00 ($400 x 5.5%). Later, you decide to sublease 100 square feet (50% of the space) for $300, collecting $16.50 from your subtenant ($300 x 5.5%). 

You’d pay $5.50 to the Department of Revenue for the sales tax you’ve collected from the subtenant by offsetting the amount you collected with an $11.00 credit ($22 paid to the landlord x 50% for sublet space).

In Practice

Sales tax on rent won’t significantly dent your real estate budget, but it’s the cost of leasing space in Florida. Include it in your financial analysis when negotiating the deal and then in the rent schedule for the recurring expenses in your abstract. 

Don’t lump it with the base rent or other occupancy expenses. You’ll want a separate line as it’s a variable cost; the state and local governments adjust the rates from time to time. To stay compliant hassle-free, download your Quick Reference Guide for Sales Tax on Commercial Rent for Florida with important links, reminders, and examples. 

A Few Words about Taxes on Rent Elsewhere

Florida isn’t the only state that accesses sales tax on the rent, and effective June 1, 2024, it won't be the highest rate in the US. Since the Reemployment Fund balance surpassed $4.07 billion in March 2024, the 2% state rate goes into effect this summer.

New York City and five major cities in Arizona impose taxes on commercial leases, while in Hawaii, landlords can pass through an excise tax on rent that must be written into the agreement.

Finally, the Floridian sales tax is similar to the value-added tax (VAT) in many European countries and the goods and services tax (GST) or harmonized sales tax (HST) in Canada. 

Wherever you are, always consult your accounting and tax professional for information specific to your situation.

Categories: : Lease Accounting, Rent Roll