Sales tax assessments on consumer goods are present in every state. However, Florida is the only state which enacts a universal sales tax on commercial leases. The sales tax on commercial leases is governed by § 212.031, Florida Statutes, which has come under the attention of politicians and the courts in recent years.
This recent attention stems from disputes about whether the sales tax on commercial leases is beneficial, or detrimental, to businesses in the state of Florida.
Legislators have begun a process to steadily reduce the state sales tax rate (which provided over $2B in funding to the state budget in 2018) over an extended period of time. The first successful attempt to reduce the sales tax rate was in 2017, with the most recent reduction taking effect on January 01, 2020 when the rate was reduced to 5.5% from 5.7%.
The provision of a sales tax on commercial leases poses a significant responsibility for net lease investors with Florida net lease properties. Sales tax must be paid monthly on base rent, additional rent, and any other consideration “for the granting of a privilege to use or occupy real property for any purpose”.
This generic statement includes property tax payments and expense reimbursements made by the tenant, among a number of other net lease expenses.While the ultimate responsibility for sales tax remittance lies with the tenant, the method in which sales tax payment is handled is determined by the lease.
The tenant has the option to remit sales tax to the Florida Department of Revenue (FDOR) directly on behalf of the landlord, or remit their sales tax obligation to the landlord along with their monthly rent.
The responsibility to pay sales tax falls on the landlord if the tenant includes a payment for sales tax in their monthly rent payments. Landlords must monitor rent payments closely to ensure that sales tax is properly recorded and paid.
Florida’s sales tax provision often goes unnoticed by even experienced net lease owners who have no previous investments in the state. Failure to pay sales tax remitted to the landlord may result in substantial sales tax obligations and fines at a later date.
The sales tax remittance responsibility is further complicated by the various “Discretionary Sales Tax” rates applied on a county by county basis, and the frequency with which the state and local municipalities adjust commercial sales tax rates.
We continue to advise our clients of current sales tax practices, rates, and procedures. It is critical that landlords work in conjunction with their advisers to monitor and correct sales tax payments prior to the assessment of fines and fees by the FDOR.