Understanding Florida’s Commercial Rent Sales Tax: A Guide for Businesses

Understanding commercial rent sales tax is crucial for any business operating in Florida. Unlike other states, Florida imposes a unique tax on commercial real estate leases that can catch many business owners off guard.

Whether you’re a landlord or a tenant, knowing your obligations can help you avoid costly mistakes and ensure smooth operations. We’ll explain what commercial rent sales tax is, why you might not be aware of it, how it affects you, and what issues you could face if you’re not in compliance.

What Is Commercial Rent Sales Tax?

Florida imposes a sales tax on the lease or rental of commercial real estate properties in Florida. A written lease agreement is not required to trigger this tax, which applies to various commercial properties, including office spaces, retail stores, warehouses and more. The tax is a percentage applied to the total monthly rent amount, which can include items beyond traditional rent.

Florida’s commercial rent sales tax rate had been as high as 6% until 2018, when it was reduced to 5.8%. It saw more reductions in the years that followed until June of 2024, when it dropped to 2% of the total rent payment. Most counties in Florida impose an additional local tax rate that is added to the state rate, which means the commercial sales tax rate can be as much as 3.5% in some counties.

Why Businesses Might Not Be Aware of Commercial Rent Sales Tax

Many business owners moving to Florida from other states might not be familiar with the tax. Out-of-state business owners might not anticipate this additional cost and could overlook it during their financial planning.

Additionally, commercial rent sales tax is often not included in lease agreements because the tax rate can fluctuate. Unless landlords and tenants are well informed, they might not realize the need to account for it in their budgeting and financial records.

What is Rent?

One of the challenges both landlords and tenants face with the commercial rent sales tax is the Department of Revenue’s (DOR) view of what constitutes taxable rent. The agency’s definition of rent can extend beyond the traditional notion of a monthly rental payment.

The DOR views anything that must be paid as part of occupancy as rent, even if it’s not outlined as such in a lease agreement. This can mean insurance payments, property taxes and common area fees can be interpreted as additional rent that should be taxed accordingly.

Impact of Commercial Rent Sales Tax on Businesses

Whether you’re a landlord or tenant, it’s important to understand your sales tax obligations on commercial rent.

From the Landlord’s Perspective

Landlords have a significant responsibility when it comes to the commercial rent sales tax. They’re required to collect this tax from their tenants and remit it to the DOR. Failure to do so can result in penalties and interest charges.

Lease agreements should clearly state that the tenant is responsible for the tax amount. This transparency helps avoid confusion and ensures that tenants are aware of their obligations. Landlords must also stay updated on any changes in the tax rate and adjust the rent and tax amounts accordingly.

For example, a landlord leasing a retail space for $2,000 per month would need to add the 2% tax, resulting in an additional $40. The tenant would then pay a total of $2,040 each month, with the landlord responsible for remitting the $40 to the DOR.

From the Tenant’s Perspective

Tenants need to be aware of their obligation to pay the commercial rent sales tax as part of their lease agreement. Even if the landlord does not explicitly state it, tenants should inquire about it and make sure they are compliant. This is crucial because, in some cases, the DOR may audit the tenant if the tax has not been paid.

Let’s say a store owner is renting a space for $1,500 per month. They must calculate the additional commercial rent sales tax (which, at 2%, would be $30) and pay $1,530 each month. The store owner should confirm with their landlord that this tax payment is remitted to the DOR. The tenant should also maintain a record of the payment so the DOR can confirm the tenant paid the tax to the landlord if the transaction is reviewed as part of an audit.

Issues and Challenges with Non-Compliance

Failing to comply with commercial rent sales tax regulations can lead to several issues. The Florida DOR conducts audits regularly; while they might not specifically target this tax, they often include it as part of a broader sales tax audit.

If a business is found to be non-compliant, it could face significant penalties and interest charges. For instance, if a business has not paid the required commercial rent sales tax for several years, the back taxes owed could be substantial (and accompanied by additional fines).

Moreover, the responsibility for non-payment can fall on both landlords and tenants. If the landlord fails to collect and remit the tax, they can be held liable. If the tenant cannot prove its payment, they might also face penalties.

Special Considerations for Multi-Location Businesses

Businesses with multiple locations — especially those with a main corporate office and smaller branches — must be particularly mindful. Taxpayers might consider the business as one complete unit, but the DOR views each location separately. Internal rent arrangements, in which the corporate office charges rent to the smaller locations, could be subject to commercial rent sales tax even in the absence of a written lease agreement.

For example, a company with a main office in Miami and smaller offices across Florida might allocate costs through an accounting entry, effectively charging internal rent. The DOR will view this as a taxable transaction subject to the commercial rent sales tax. Payments for insurance and property taxes by the main office on behalf of the other locations might also be reclassified as rent payments subject to the tax. This can be the case regardless of whether any actual payment or accounting entry was made between the locations.

Steps to Ensure Compliance

Meeting commercial rent sales tax requirements involves several key steps that both landlords and tenants must follow.

Review and Update Lease Agreements

Lease agreements should clearly state that rent is subject to this tax and outline the responsibilities of both the landlord and the tenant.

Educate Landlords and Tenants

Landlords should inform tenants about the tax during lease negotiations and account for the tax in rent payments. Tenants should ask about the tax and include it in their budgeting and financial planning.

Maintain Proper Documentation

Keeping detailed records is essential. Landlords should maintain records of all rent payments received and the corresponding commercial rent sales tax collected. Tenants should keep copies of their lease agreements, rent receipts and any other documentation showing the tax as paid.

Consult with Tax Professionals

Given the complexities of commercial rent sales tax, consulting with a state and local tax (SALT) expert is advisable. A SALT accounting professional can provide guidance on structuring lease agreements, ensuring compliance, and avoiding potential pitfalls.

Understanding and complying with commercial rent sales tax is essential for business owners, CFOs and controllers operating in Florida. It requires careful attention from both landlords and tenants to avoid significant penalties and ensure smooth business operations.

If you have questions or need assistance with compliance, contact our SALT professionals. We offer expert advice and services to help you manage your tax obligations and ensure your business is compliant with Florida regulations.

By staying informed, reviewing lease agreements and maintaining proper documentation, you and your business can navigate the complexities of the commercial rent sales tax effectively.

All content provided in this article is for informational purposes only. Matters discussed in this article are subject to change. For up-to-date information on this subject please contact a James Moore professional. James Moore will not be held responsible for any claim, loss, damage or inconvenience caused as a result of any information within these pages or any information accessed through this site.