Florida’s Sales Tax on Commercial Rent in 2025

Will the sales tax rate on commercial rent finally be reduced to 0% in 2025? Effective June 1, 2024, Florida businesses saw a significant change in the state sales tax rate applied to commercial rentals from 4.5% all the way down to 2%. A similar reduction this year would eliminate the tax altogether.

Even if Florida’s tax on rents, leases, and licenses of real property is finally eliminated in 2025, it is important to remember that Florida sales tax audits go back three years. Regardless of whether sales tax on commercial rent is down to 0% in 2025, an audit initiated this year would still capture up to three years of unpaid taxes from a noncompliant Florida taxpayer.

Understanding Florida’s Sales Tax on Commercial Rentals

Florida imposes a state sales tax on rentals, leases, or licenses to use real property under Section 212.031 of the Florida Statutes (F.S.). This tax applies to a range of commercial properties, including:

• Office Space: Commercial office buildings and individual office rentals.
• Retail Space: Properties rented out for retail purposes, from storefronts to shopping centers.
• Warehouses: Storage spaces and distribution centers.
• Self-Storage Units: Mini-warehouses and storage lockers.

The total rent charged encompasses all considerations paid by the tenant for the right to use or occupy the real property. This includes not only base rent but also any additional fees or charges that contribute to the tenant’s overall cost of occupying the space.

Key Update: Reduction in State Sales Tax Rate

As of June 1, 2024, the state sales tax rate on commercial rentals is set to decrease from 4.5% to 2.0%. This reduction represents a significant shift in the tax landscape for Florida businesses and property owners. Here’s what you need to know about this change:

Effective Date and Rate Application

• Rental Charges from June 1, 2024, Onward: Rentals for periods starting on or after June 1, 2024, will be taxed at the reduced state sales tax rate of 2.0%, plus any applicable local option discretionary sales surtax.
• Rental Charges Prior to June 1, 2024: Rentals paid on or after June 1, 2024, for periods from December 1, 2023, through May 31, 2024, will continue to be taxed at the previous rate of 4.5%, plus any local surtax.
• Prepaid Rent: Rentals paid before June 1, 2024, for periods starting on or after June 1, 2024, will be subject to the new rate of 2.0%.

This transition period requires careful attention to ensure that tax rates are applied correctly based on when the rental period starts and when the payment is made.

Local Option Discretionary Sales Surtax

While the state sales tax rate is being reduced, the local option discretionary sales surtax imposed by the county where the real property is located will continue to apply. This surtax varies by county and can significantly impact the total tax rate on commercial rentals.

What’s Not Covered by the Reduced Rate

It is important to note that the reduction in the state sales tax rate on commercial rentals does not extend to all types of rentals. Specifically excluded from the reduced rate are:

• Transient Rentals: Rentals or leases of living, sleeping, or housekeeping accommodations for six months or less, which are subject to a different tax rate.
• Parking and Storage Spaces: Rental of parking spaces in lots or garages, docking or storage spaces for boats, and tie-down or storage space for aircraft.

These categories retain their original tax rates and are not affected by the reduction in the sales tax on commercial rentals.

Reporting and Compliance

Proper reporting and compliance with the new tax rates are crucial for both landlords and tenants. Here are the steps to ensure you adhere to the updated tax regulations:

1. Update Your Tax Calculations: Make sure your accounting systems and rental agreements reflect the new 2.0% state sales tax rate for rental periods starting on or after June 1, 2024.
2. Review Rental Agreements: For rental agreements that extend beyond June 1, 2024, verify how the new tax rate will be applied. If rent is prepaid, ensure the correct tax rate is used based on the period of occupancy.
3. Check Local Surtax Rates: Confirm the local option discretionary sales surtax rate in the county where the property is located. This surtax will be added to the state sales tax rate to determine the total sales tax due.
4. Consult Tax Forms and Guidance: For accurate reporting, refer to the Florida Department of Revenue’s resources. The department provides detailed guidance on reporting tax due on commercial rentals on their website. Look for the form titled “Sales and Use Tax on the Rental, Lease, or License to Use Commercial Real Property” (GT-800016).
   
   

Frequently Asked Questions

To address common questions regarding the new tax rate and its implications, consider the following FAQs:

• How does the new tax rate impact existing leases? The new tax rate applies to rental periods beginning on or after June 1, 2024. For leases beginning before this date but continuing afterward, the rate adjustment should be made based on the applicable period.
  
  
• What if my rental payment covers both pre- and post-June 1, 2024 periods? Rental payments that cover periods before and after June 1, 2024, need to be split accordingly. The portion of the rent attributable to the period before June 1, 2024, should be taxed at 4.5%, while the portion for the period after should be taxed at 2.0%.
  
  
• Are there any exemptions to the state sales tax on commercial rentals? Exemptions may apply based on specific circumstances or property types. For detailed information on exemptions, consult the Florida Department of Revenue or your tax advisor.
  
  

Practical Implications for Businesses

The reduction in the state sales tax rate on commercial rentals offers significant financial benefits for businesses leasing commercial spaces. Lower tax rates can reduce operating costs, potentially leading to lower rental expenses. This change may also impact rental negotiations, as tenants and landlords adjust to the new tax landscape.

For landlords, updating lease agreements and accounting practices to reflect the new tax rate is essential. Effective communication with tenants about how the tax changes will affect their rental payments will help ensure a smooth transition.

Conclusion

The reduction in the state sales tax rate on commercial rentals from 4.5% to 2.0% starting June 1, 2024, marks a significant shift in Florida’s tax policy. This change provides an opportunity for cost savings for businesses and requires careful attention to ensure compliance with the new rate structure.

Landlords and tenants alike should take proactive steps to update their rental agreements, accounting practices, and reporting procedures. Staying informed about local surtax rates and ensuring accurate application of the tax rates will help navigate this transition smoothly.

For further details and updates on Florida’s sales tax regulations, consult the Florida Department of Revenue and their online resources. Staying up-to-date with these changes will ensure your business remains compliant and benefits from the new tax policies.

References

• Florida Statutes. (2024). Section 212.031 – State Sales Tax on Rentals, Leases, or Licenses to Use Real Property. 
• Florida Department of Revenue. (2024). Sales and Use Tax on the Rental, Lease, or License to Use Commercial Real Property (GT-800016). 
• Florida Administrative Code. (2024). Rules and Regulations Related to Sales Tax on Commercial Rentals. 
  
  

By understanding and adapting to the new tax rate, businesses can better manage their financial planning and maintain compliance with Florida’s sales tax regulations.