Effective June 1, 2024, there has been a significant reduction to the state sales tax on commercial rentals. This adjustment is set to benefit businesses by reducing the tax rate from 4.5% to 2% on the rental of commercial real estate. Here’s a breakdown of what this means for tenants and property owners alike.
What’s Included in the Reduction?
The reduced tax rate applies to the commercial rental of various types of real property, including, but not limited to:
- Commercial offices;
- Retail spaces; and
- Warehouses.
This reduction does not extend to all types of rentals. Rentals for living spaces, parking garages, and boat docking are not covered under this new tax rate.
Understanding the Tax Application
The tax is levied on the full consideration due and payable by the tenant. If rental payments cover both taxable and nontaxable uses or properties, the tax is only applicable to the taxable portion.
It’s important to note that this tax reduction is not retroactive. This means that:
- Rentals paid after June 1, 2024, for periods before this date will still be taxed at the old rate of 4.5%.
- Conversely, payments made in advance before June 1, 2024, for rental periods occurring after this date will benefit from the reduced 2% rate.
The applicable tax rate depends on the rental period, not on when the payment is made.
County-Level Surtaxes *
In addition to the state sales tax, counties may impose their own discretionary surtaxes on commercial rentals. These surtaxes vary between 0% and 1.5%. For instance:
- Collier County does not impose any additional surtax;
- Lee County has a surtax rate of 0.5%;
- Charlotte County has a surtax of 1%;
- Hendry has a surtax of 1.5%; and
- Glades County has a surtax of 1%.
This surtax is imposed on top of the 2% reduced rate. What Does This Mean for You?
For tenants with various commercial rentals, this reduction could lead to significant cost savings, especially for those with substantial commercial rental expenses. Tenants should review their rental agreements and consult with tax professionals to understand how the new rate affects their obligations, as many times, taxes are passed on to tenants.
For property owners and managers, keeping abreast of both state and local tax regulations will be crucial to ensuring compliance and accurate billing.
Stay informed and plan accordingly to make the most of these tax changes and to avoid any surprises in your rental costs.
If you have questions about whether the reduction applies to or how it will affect your property, contact a real estate attorney at Woodward, Pires, and Lombardo, P.A. Please call 239-394-5161 or request a confidential consultation online today.
*Surtaxes are subject to change; the information presented is accurate as of 8/5/2024