In most instances in order to run a business, it is necessary to acquire a physical space to operate in. Quite often is more reasonable to lease a space rather than purchase real property and rent being paid to a landlord. In the state of Florida, the leasing of real property is subject to a commercial rent tax based upon the total rent consideration for the privilege to use real property. Commercial rent tax is levied at the rate of 5.5 percent plus surtax, on the total rent consideration, including any license fee charged for real property. The total rent consideration for real property includes all payments and exchanges of assets for the granting of privilege to use or occupy real property. This may include charges for ad valorem taxes (even if paid directly to the county tax collector’s office), common area maintenance, customer (free) parking, or janitorial service. For example, even if you are not writing checks written to a landlord for “rent”, but you are paying the property taxes and property insurance on behalf of the landlord, those payments are considered payments for commercial rent since the landlord would normally use rent proceeds to pay for these expenses. If the county or city that the real property is located has a surtax, this must also be collected based upon the total rent consideration. For example, if the county has a 1 percent surtax, then the total tax rate will be 6.5 percent applied to the taxable rent consideration. Unlike most other transactions where the taxable base for surtax is capped at $5,000 per transaction, there is no cap for commercial rent.
If you lease or grant a license to use commercial real property, you are required to register as a dealer and collect sales tax. The tax imposed must be collected and shall be due at the time of the receipt of such rental or license fee payment. In the case of a contractual arrangement that provides for both taxable rent payments and payments not subject to tax, the tax shall be based on a reasonable allocation of such payments and shall not apply to the portion which is for the nontaxable payments. When a lease involves multiple uses of real property wherein a part of the real property is subject to the tax and a part of the property would be excluded from the tax, the department of revenue has discretion to determine what portion of the total rental charge is exempt from the tax imposed, so it important to have strong documentation.
If you have been collecting commercial rent and have not been remitting the correct amount of tax, you are liable for the tax due and may incur additional penalties and interest when audited. If you have been audited and are liable for commercial rent tax, we may be able to help you reduce your audit assessment and ensure all emptions are being applied. If you have not yet been audited but would like to remit tax due and avoid the risk of an audit, then a voluntary disclosure may be the option for you.
Authority
Florida Statute Sec 212.031 (Tax on rental or license fee for use of real property)
Additional Resources
Florida Department of Revenue Guide: Sales and Use Tax on Commercial Property Rental
Donovan Niles 