When Governor Rick Scott stated Florida is the only state to apply a tax to commercial real estate leases, he was not lying. Thankfully, this tax will soon be reduced. At the moment, Florida applies a six percent sales tax on rent paid for commercial real estate property. This includes everything from stores to warehouses and even offices. Things will be changing once the new year rolls around.
Florida: Unique for the Wrong Reason?
Though New York City applies a six percent tax on all commercial real estate leases, this tax is limited to businesses that pay a minimum of $250,000 per year in rent. Hawaii has a four percent general excise income tax that can be applied to money made from rentals. A whopping 45 states have no use or sales tax or state law strictly applicable to tangible personal property.
Florida is the sole state with a sales tax on commercial real estate leases. Governor Scott previously promised to eventually phase out such leases. The recommended ’17-’18 budget proposed reducing the tax on these leases by one-quarter percentage point. Governor Scott’s office states that such a reduction would clip over $450 million in state sales tax applied to commercial real estate leases.
Following Through on the Promise
As of January 1, 2018, the sales tax on the rent or license fee applied to a commercial real estate lease will be reduced from six percent to 5.8 percent. This is fantastic news for the Florida business community. Many expect the tax reduction to lead to job gains throughout the region in the coming months, years and decades.
Data centers have enjoyed a sales and use tax exemption since July 1, 2017. This exemption applies to property leased, rented or purchased by data center owners as well as tenants when used to build, operate or maintain data center computer server equipment. However, the data center owner/tenant must expend a capital investment of $150 million. The data center won’t qualify unless it has a minimum of 15 megawatts of aggregate power capacity and a minimum of one megawatt of power capacity provided to each owner/tenant of the data center. These requirements must be satisfied within five years following the beginning of the data center’s construction. Additional investment requirements must be met by June 20, 2022 in order for the tax break to continue.