Commercial Landlord and Property Manager Alert: Hillsborough County Tax Rate Reduced by Court Action

The Florida Supreme Court recently invalidated the 1% transportation discretionary sales surtax approved by Hillsborough County voters in November 2018.[1] As a result, the Florida Department of Revenue advises that dealers cease collecting this 1% Hillsborough County surtax, effective immediately.[2] Commercial landlords and property managers should promptly reduce the tax rate charged in Hillsborough County by 1%. Any previously collected surtax should be remitted to the Department of Revenue on or before the next return due date.

Due to the lower state tax rate imposed on commercial rent, the state and local tax rate imposed on rental consideration in Hillsborough County is now 7%, while the tax rate imposed on other charges that landlords and property managers commonly impose (e.g., for parking, sales and rentals of tangible property, and janitorial, security and pest control services) is now 7.5%. Because of these differing tax rates, commercial landlords and property managers need to ensure that each amount invoiced to tenants is taxed at the correct rate.[3]   

Rental Consideration

The state commercial rentals tax rate was previously reduced to 5.5% for rental periods beginning January 1, 2020.[4] The correct Hillsborough County local option surtax rate is now 1.5%; together with the state commercial rentals tax rate, this yields a total rate of 7%. Commercial rents are not subject to the $5,000 local option surtax limitation.

Parking Charges

Charges for parking or storage of motor vehicles, docking or storage of boats, and tie-down or storage of aircraft are subject to tax under a different statute than commercial rentals. These charges continue to be taxed at the 6% state rate, plus the correct Hillsborough County surtax rate of 1.5%, for a total tax rate of 7.5%.  These charges are not subject to the $5,000 county surtax limitation.

Sales and Rentals of Tangible Property

Charges for sales or rentals of tangible property continue to be taxed at the 6% state rate, plus the correct Hillsborough County surtax rate of 1.5%, for a total tax rate of 7.5%. Charges for sales or rentals of tangible property are subject to the $5,000 county surtax limitation (with important caveats that are beyond the scope of this article).

Janitorial, Security and Pest Control Services

Charges for janitorial, security and pest control services that are provided by or resold by landlords and property managers to commercial tenants continue to be taxed at the 6% state rate, plus the correct Hillsborough County surtax rate of 1.5%, for a total tax rate of 7.5%. Charges for janitorial, security and pest control services are not subject to the $5,000 county surtax limitation.

Refunds?

The Florida Supreme Court’s decision raises questions whether refunds of the invalidated 1% Hillsborough County surtax will be required and, if so, to whom. The Court’s opinion does not address these questions, and the answers will likely have to be determined by the courts. In excess of $500 million in revenue has been generated by this surtax since January 2019. The Department of Revenue bulletin notes that previously remitted surtax revenue has been distributed to Hillsborough County and other local jurisdictions. One of the lawsuits consolidated in this case is a class action filed on behalf of taxpayers who paid the tax, which may provide a vehicle for refunds. Generally, Florida law requires that a refund claim be filed within three years from the date the tax was paid to the state.[5] Specific advice regarding potential refund claims is complex and may vary by circumstance, and is beyond the scope of this article.  

Conclusion

Commercial landlords and property managers should immediately reduce their tax rate charged in Hillsborough County by 1%. Specific charges commonly imposed by commercial landlords and property managers may be subject to different tax rates. Commercial landlords and property managers must properly identify and segregate these charges for purposes of calculating and reporting the appropriate tax due. Commercial landlords and property managers should evaluate the potential for refunds of the invalidated Hillsborough County surtax. Please let our Real Estate Team or State and Local Tax Team know if we can assist you in developing your Florida commercial rent tax compliance program.

About the Authors:

Vicki L. Berman has more than 36 years of experience representing buyers and sellers, landlords and tenants, borrowers and lenders, investors, brokers, developers and consultants in a wide variety of commercial and residential real estate transactions. Ms. Berman handles significant transactions for the purchase and sale of real estate, and advises clients on all aspects of leasing transactions, including office, retail and industrial. She may be reached at vberman@www.deanmead.com

Mark E. Holcomb has 36 years of experience practicing in state and local taxation. He represents clients before the Florida Department of Revenue and local taxing authorities, and in litigation at the trial and appellate levels. Mr. Holcomb advises clients on a broad range of state and local taxes, including corporate income and franchise tax, sales and use tax, documentary stamp tax, communication services tax, insurance premium tax, ad valorem tax and motor fuels tax, in tax controversy work and in planning opportunities. He may be reached at mholcomb@www.deanmead.com.

[1] Emerson v. Hillsborough County, Case Nos. SC19-1250 and SC19-1343 (Feb. 25, 2021).

[2] Tax Information Publication 21A01-01 (March 16, 2021).

[3] See our prior posts: 2019; 2018; 2017

[4] See TIP 19A01-11 (Oct. 30, 2019)

[5] Section 215.26, Fla. Stat.; Rule 12-26.003(1), Fla. Admin. Code.