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Commercial Landlord and Property Manager Alert:
Florida’s Rent Tax Rate Reduced (Again) for 2020
The Florida Legislature has, again, reduced the state commercial rentals tax rate for periods beginning on or after January 1, 2020. Local option (county) surtax rates, however, remain unchanged. While the reduced state tax rate applies to commercial rental consideration, the standard state tax rate continues to apply to 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. The reduced commercial rentals tax rate also does not apply to charges for transient (i.e., residential and lodging) accommodations. Commercial landlords and property managers need to ensure that each amount invoiced to tenants is taxed at the correct rate. This article guides commercial landlords and property managers in complying with this tax rate change.
Rental Consideration
The state commercial rentals tax rate is reduced from 5.7% to 5.5% for rental periods beginning January 1, 2020, regardless of when the rental consideration is paid.[1] If the rental consideration is paid in advance for January 2020, for example, the lower rate applies; however, rent paid on or after January 1, 2020 for prior periods is subject to the higher tax rate. Pass-through charges that are deemed to be additional taxable rental consideration are also subject to the lower tax rate, as discussed further below. When applying the utility pass-through exemption, special care must be taken to apply the correct rate for the period in question.
The local option surtax rate applies based on the county in which the property is located. Since county surtax rates are subject to change annually, landlords and property managers should consult the Florida Department of Revenue’s current Discretionary Sales Surtax chart[2] for specific local rate information. Commercial rents are not subject to the $5,000 local option surtax limitation.
Taxable rental consideration will continue to be reported on line C of Form DR-15, Sales and Use Tax Return. The Department expects the revised form, reflecting the lower state commercial rentals tax rate, to be available online in early January 2020. If only commercial rent is reported (i.e., no parking charges or other taxable transactions), Form DR-15EZ may be filed.
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 applicable county surtax) and are not eligible for the reduced commercial rentals tax rate. Landlords and property managers collecting these charges should report these amounts as “transient rentals” on line D of the DR-15. Since taxable amounts other than commercial rent are being reported, Form DR-15EZ cannot be used. 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 will continue to be taxed at the 6% state rate (plus applicable county surtax). These amounts should be reported on line A of the DR-15. Since taxable amounts other than commercial rent are being reported, Form DR-15EZ cannot be used. 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 will continue to be taxed at the 6% state rate (plus applicable county surtax). These amounts should be reported on line A of the DR-15. Since taxable amounts other than commercial rent are being reported, Form DR-15EZ cannot be used. Charges for janitorial, security and pest control services are not subject to the $5,000 county surtax limitation.
In circumstances where the landlord or property manager incurs charges for janitorial, security or pest control services and passes those costs through to tenants as additional rental consideration, however, the lower commercial rentals tax rate will apply to those pass-through charges as additional rent.
Conclusion
Because this new rate change applies only to commercial rental consideration, 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. 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.
[1] See TIP 19A01-11 (Oct. 30, 2019), available at: https://revenuelaw.floridarevenue.com/LawLibraryDocuments/2019/10/TIP-122805_TIP_19A01-11_FINAL_RLL.pdf
[2] Form DR-15DSS, available at: https://floridarevenue.com/Documents/dr15DSS_%20r11_19.pdf
