Sales Tax Applies to Payments by Tenants for Leasehold Improvements Unless Certain Conditions are Satisfied
A recent ruling by the Florida Department of Revenue indicates when sales tax will be imposed on leasehold improvements required to be made by a tenant pursuant to a commercial lease. In Technical Assistance Advisement 13A-023, the Department concluded that such leasehold improvements would be considered rent subject to sales tax unless all of the following five conditions are satisfied:
The leasehold improvements are made to put the premises in a condition suitable for the operation of the tenant’s business;
There is no requirement for the tenant to spend a specific or minimum amount of money on the improvements;
There is no credit given against rental payments for the leasehold improvements furnished by the tenant;
The leasehold improvements are not explicitly classified as rent, additional rent, rent-in-kind, or in lieu of rent; and
There is no evidence that the tenant and landlord attempted to reclassify rental payments to avoid tax.
Below is a link to an article that describes the ruling in more detail and addresses related topics.