Governor DeSantis aimed to relieve the tax burden on businesses by signing legislation to eliminate Florida’s business rent tax. The measure, enacted through House Bill 7031, phases out the tax on commercial leases by October 1, 2025, marking a big win for Florida’s business community. Florida has long been the only state in the U.S. to impose a statewide sales tax on commercial leases, creating a competitive disadvantage for businesses in other states.
The commercial rent tax, previously set at 4.5% and gradually reduced in recent years, applied to the total rent paid for commercial properties, including office, retail, and industrial spaces. This tax added a significant cost of doing business in Florida, particularly for small and medium-sized enterprises and startups operating on tight budgets.
With the elimination of this tax, businesses leasing commercial space will see significant savings. For example, a business paying $100,000 annually owed an additional $4,500 in commercial rent tax. The removal of this expense frees up capital that companies can reinvest in their business operations, employee wages, expansion or innovation.
Equipment and Certain Real Property Rentals Remain Taxable
Specific real property rentals, such as short-term residential rentals, docked boats and aircraft hangar rentals, are still taxable. Short-term residential rentals remain taxable unless a lease lasts longer than six months. The tax on commercial rentals would still be due on rental payments for occupancy periods before the tax repeal effective October 1; therefore, any rent paid after October 1 for a period before October 1, 2025, is still subject to tax. For example, if a renter is two months behind in paying rent and makes payment after October 1, sales tax would still be due on these pre-repeal periods. This also applies to rental increases effective for periods of time before October 1, 2025.
Successor Liability Considerations
A purchaser of commercial real property must still consider successor liability for sales tax obligations of the seller for periods before October 1, 2025, because the Florida Department of Revenue (DOR) has three years from when a sales tax return was filed to audit and assess a tax deficiency. A purchaser is relieved of successor liability by obtaining a certificate of compliance from the DOR.
Benefits of Eliminating Florida Business Rent Tax
Economists and business advocates expect this change will boost Florida’s economic development. By eliminating the business rent tax, Florida enhances its attractiveness to out-of-state companies looking to relocate or expand operations. It also levels the playing field for local entrepreneurs competing with online retailers and out-of-state businesses not subject to the same tax burdens.
However, the state’s revenue loss, which is in the hundreds of millions, raises questions about how Florida will offset the impact on its budget. The state has relied on strong tourism and sales tax revenue, and the tax cut could strain funding for public services, particularly during economic downturns.
As more companies move to Florida and expand their physical presence, job creation and business activity could generate new tax revenue streams for the state. Eliminating Florida’s commercial rent tax in House Bill 7031 represents a pro-business policy shift to encourage economic growth, attract investment and support entrepreneurs. While concerns exist about fiscal balance, the move is seen as a positive development for Florida’s competitive business landscape.
Author: Bonnie Susmano, JD, MBA | [email protected]
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