Commercial property owners in Duval County, Florida, who manage rentals are all too familiar with the sales taxes associated with commercial property leases—especially since Florida is the only state that imposes sales tax on commercial rent. As of June 1, 2024, there are significant updates to the commercial rental sales tax rate in Florida. Property owners will need to adjust the amounts collected from business tenants.
Legislative changes and tax reductions
The 2023 legislative session brought about substantial tax changes through HB 7063, signed into law by Governor DeSantis on May 25, 2023. This legislation includes important revisions across various taxes administered by the Department of Revenue, significantly impacting commercial property owners and their tenants.
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Florida’s commercial rent tax reduction
One of the key highlights of the new legislation is the reduction in the state sales tax on commercial rentals—the tax rate was reduced to 2%, effective June 1, 2024. The tax applies not only to base rent but also to “constructive rent,” which includes pass-through expenses like insurance, mortgage payments, or property taxes handled by tenants on behalf of property owners.
Impact on Duval County commercial rentals
For commercial property owners in Duval County, the new state tax rate reduction to 2% significantly affects overall tax collection. Although the state tax rate is lower, local option sales surtaxes still apply. With Duval County’s surtax rate of 1.5%, the effective commercial rental tax rate will now fluctuate between 3.5% and 4%. St. Johns surtax rate is 0.5%, and Clay County’s rate is 1.5%.
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Understanding timing and rates
It’s crucial to understand that the tax rates apply to the period of occupancy, not the payment date. For instance, charges for occupancy in May 2024 will be subjected to the 4.5% rate, while occupancy charges from June 2024 onwards will follow the new 2% rate.
Future changes and projections
The substantial reduction to a 2% state rate on commercial rent is a significant shift aimed at easing the financial burden on businesses and fostering economic growth. This change was scheduled to take effect once the Unemployment Compensation Trust Fund reached its pre-pandemic balance, which was projected to be around mid-2024 but has now been confirmed for June 1, 2024. Given these changes, it is essential for commercial property owners to stay informed and adjust their billing practices accordingly. If you have any questions or need further clarification on how these changes affect your business, don’t hesitate to seek guidance from our professional advisors. Contact us to schedule a consultation and ensure compliance with the new regulations.