SALES TAX ON COMMERCIAL LEASES TO BE REDUCED ON DECEMBER 1, 2023 (AND POTENTIALLY AGAIN IN 2024)
As a reminder, sales tax due on commercial lease payments will soon be reduced. Effective December 1, 2023, Florida’s state sales tax rate on commercial lease payments (including base rent and additional rent) will decrease from 5.5% to 4.5%. The reductions are a result of House Bill 7063, which was enacted earlier this year.
The reduced tax rate applies only to periods of occupancy on or after December 1, regardless of when the rent is actually paid. For example, if a tenant paid rent for November 2023 late—on or after December 1—the existing 5.5% state-level rate would apply. Conversely, if a tenant pays December 2023 rent early—prior to December 1—then the new 4.5% rate would apply.
Note, the reduction applies to the state-level tax rate only. It does not impact the local discretionary sales surtax imposed by many Florida counties in addition to the state tax. In Sarasota County and Manatee County, the local discretionary sales surtax is currently an additional 1.0%. As such, beginning on December 1, 2023, the total combined tax rate in these counties will be 5.5%.
Further, the reduction applies only to leases of commercial real property and does not impact sales tax on the following: (i) short-term residential leases for periods of six months or fewer, which remains at 6%, plus any local sales tax and local tourist development tax; (ii) motor vehicle parking or storage charges; (iii) boat dock rentals or storage; and (iv) aircraft tie-down fees.
Looking ahead, the state-level sales tax rate on commercial lease payments is expected to be further reduced to 2% by late 2024 under Senate Bill 50, a wide-sweeping tax relief plan enacted by the Florida legislature in 2021. This second reduction will occur after Florida’s Unemployment Trust Fund is replenished to the pre-pandemic level of $4,071,519,600. According to the most recent forecast from the Florida Legislature, Office of Economic and Demographic Research, published on August 4, 2023, the balance of the fund is expected to exceed the pre-pandemic threshold in May 2024, which means that the sales tax reduction would take effect in August 2024.