Will Lease Taxes Soon Be A Thing Of The Past?

The reduction and elimination of the tax on commercial leases continues to gain considerable support.

The Florida CCIM Chapter and active CCIMs , which represents more than 1,200 commercial real estate industry professionals, join the efforts of a number of industry groups and large associations including the 127,000 member Florida Realtors, the Miami Association of Realtors (more than 31,000 members), NAIOP, ICSC, and SIOR in support of the Governor’s 2014-2015 “It’s Your Money Tax Cut Budget,” which highlighted his commitment to eliminating $500 million in taxes and fees for the upcoming legislative session.

“The Florida CCIM Chapter is happy with Governor Scott’s initiative, as its members represent the leading commercial real estate brokers, lenders, developers and numerous other commercial real estate practitioners.  This proposed sales tax reduction will help to drive more companies to establish or expand their operations in Florida and promote community development and jobs,” commented Florida CCIM Chapter President Peter J. Barnett, CCIM.

Florida is the only state that imposes a state-wide sales tax on commercial leases.

A state tax of six percent (6%) is imposed on the total rent charged under the lease, however the Department of Revenue (DOR) has taken the position that any payment required to be paid as a condition of occupancy under a commercial lease is taxable as rent. This means that in addition to the base rent being taxed, “passed through expenses” including building insurance, common area maintenance, and ad valorem real estate taxes themselves are taxed (double taxed). In addition, individual counties and taxing authorities may impose additional taxes, such as Miami-Dade County, which charges one percent (1%) additional, for a total of seven percent (7%).

Florida Statute §212.031 addresses sales tax on leases and Florida’s DOR interprets the provisions in Fla Administrative Code Rule 12A-1.070.

It is argued that this additional tax places Florida at a competitive disadvantage when attracting new businesses to the state. Opponents contend that the tax forces landlords to charge more for rent than comparable facilities just across state lines. In addition, it increases their record keeping burdens as they become tax collectors for the state.

Governor Rick Scott announced on January 28th that his budget proposes reduction of the tax on commercial leases by one-half of a percentage point for a savings of approximately $104-million the first year. According to all research, the impact of this reduction would be $500-million gain in terms of jobs and economic activity.

Additionally, two bills filed for the 2014 Florida legislative session push for more and would begin a complete phase out of the tax.  SB 176 by Sen. Dorothy Hukill (R-Port Orange), Senate Finance and Tax Chairwoman, and HB 11 by Rep. Greg Steube (R-Bradenton) would lower the rate from 6 percent to 5 percent.

“With the support of the governor, these efforts are gaining considerable traction. Compelling cases have been made that the increased economic activity more than offsets the decreased collections,” said John Dohm, CCIM, SIOR, CFP. 

Dohm, a licensed real estate broker for more than 25 years, tirelessly analyses important issues affecting the commercial industry.

John currently serves on the board of the CCIM Miami District, is past president of the CCIM Broward Chapter and served for several years on the board of the Florida CCIM Chapter.

Dohm also served as President of the Realtors Commercial Alliance of MIAMI in 2012 and is one of fewer than 700 individuals in the world to hold both the CCIM and SIOR (Society of Industrial and Office Realtors) designations and the only one to have also been awarded the CFP (Certified Financial Planner) certification in addition to all major securities licenses.

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A CCIM (Certified Commercial Investment Member) is a recognized expert in the commercial and investment real estate industry. The CCIM lapel pin is earned after successfully completing a designation process that ensures CCIMs are proficient not only in theory, but also in practice. This elite corps of CCIMs includes brokers, leasing professionals, investment counselors, asset managers, appraisers, corporate real estate executives, property managers, developers, institutional investors, commercial lenders, attorneys, bankers, and other allied professionals. The mission of the Florida CCIM Chapter is to provide the highest quality of marketing and networking opportunities, services, and education that will enhance our members’ ability to conduct business successfully. For more information, please visit http://flccim.com/ or contact Florida CCIM Chapter President Peter J. Barnett, CCIM at 813.351.2791.

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