12 Billion Commercial Lease Tax Stays On
Written by Scott Blake on May 16, 2013
By Scott Blake
Landlords in Miami were hoping to a get break this spring from lawmakers in Tallahassee in phasing out a state sales tax on commercial leases, but they came up empty.
It seems lawmakers were not willing to part with $1.2 billion a year or more in state revenue that the statewide tax generates.
Now all that landlords can do is wait for next year’s legislative session.
"You’re talking about large sums of money," said Michael Silver, president of Realtors Commercial Alliance of the Miami Association of Realtors, which has opposed the tax.
Florida has a 6% state sales tax on commercial rents, which landlords generally pass on to their tenants. In Miami-Dade County, the tax is 7%, as officials have elected to activate an optional increase.
Landlords have long wanted to wipe out the tax, which would eliminate an extra cost on commercial leases they argue makes them less competitive when it comes to attracting tenants over other states that don’t have the tax.
"They could be more competitive in their rental rates," Mr. Silver said.
In many cases, Mr. Silver added, Miami-Dade’s 7% tax adds tens of thousand of dollars a year in leasing costs for commercial tenants — money that could otherwise be used for private business purposes.
"It’s always been a topic of discussion," he said. "In the past year or two, it’s become more of a focus because of the economy."
Eliminating the tax, proponents say, would allow landlords to collect higher rents, boosting commissions for commercial agents and brokers. Or it would give landlords the option of lowering their rents to be more price competitive in leasing their space, thus helping commercial tenants become more profitable and perhaps freeing up money for expansion or jobs.
Sometimes the tax can be the deal-breaker for a company that is considering moving to Florida versus another state that doesn’t have the tax, Mr. Silver said.
Opponents of ending the tax, meanwhile, say it would drain government coffers and hurt public services. Even Mr. Silver concedes that phasing out the tax in Florida would result in "a big hit" to the state budget.
Still, the issue has been a priority for the Florida Association of Realtors, the Miami Association of Realtors, the International Council of Shopping Centers and other industry groups. Some thought they might have the political muster this year to finally wipe out the tax. But the proposal died in legislative committee without coming to a vote.
The Legislature "shelved it basically. That’s the bottom line," said Paul Cauchi, senior vice president of commercial issues for the Miami Association of Realtors. If it had been approved, Mr. Cauchi added, "it would have a significant amount of money that would not be in state coffers."
The proposed legislation would have phased out the tax by 2019. It had been introduced by state Sen. Dorothy Hukill, a Republican from Port Orange, and state Rep. H. Marlene O’Toole, a Republican from Lady Lake. The measure didn’t have the support needed to get to the full House or Senate.
Florida is the only state that taxes commercial rents, according to the Florida Association of Realtors. The 6% tax applies statewide, but counties have the option of charging an additional 1% surcharge tax.
While Florida holds distinction of being the only state to impose a statewide tax on commercial rents, several other jurisdictions such as Arizona, Hawaii and New York City impose some form of local or county tax on commercial rents, according to the National Law Review.
Depending on the jurisdiction, taxes on commercial rents may be payable to the local municipality, the county or the state. And even in states that do not impose statewide taxes, some counties defer collection to the state department of revenue.
In Florida, payment of the tax is due on total rent paid for the right to use or occupy commercial property, such as office or retail space, warehouses, and convention and meeting rooms, according to the Florida Department of Revenue.
The state broadly defines taxable rent as any payment required to be paid as a condition of occupancy under a commercial lease.
If a tenant makes payments such as mortgage, property taxes or insurance on behalf of the tenants, as stipulated in their leases, those payments are also classified as rent and are subject to the tax, which Mr. Silver and others argue is a form of "unfair double taxation."
However, there are some exemptions from the tax. Rentals of property assessed as agricultural; commercial rentals to nonprofit organizations that hold a current state certificate of exemption; and rentals to federal, state, county or city government agencies are exempt.
The Florida Association of Realtors had drafted legislation would have cut the tax rate from 6% to 5% in 2014 and by additional one-point increments each year after that until it was eliminated.
In Florida, tenants are ultimately responsible for the payment, but landlords are generally required to act as the agent to collect and remit the tax.
Supporters of the tax cut have argued that it would make Florida more competitive in attracting business. On the other hand, Florida is one of only seven states that do not have a personal income tax, and Florida has one of the nation’s lower corporate income tax rates, according to the Washington, DC-based nonpartisan Tax Foundation.
Some say that having the commercial lease tax cut even considered in Tallahassee shows the influence that realtors have. For instance, the Florida Association of Realtors gave $620,000 to the state’s Republican Party and $220,000 to the Democratic Party during the 2012 elections, the Orlando Sentinel reported.
Mr. Silver of the Miami Association of Realtors said eliminating the commercial lease tax would fit well with all of the economic development plans currently unfolding in Miami. Those particularly include improvements at Port Miami and inland cargo operations designed to boost cargo coinciding with the future opening of the expanded Panama Canal.
"It’s unfortunate [the tax cut] didn’t make it through [legislative] committee," he added. "But that’s politics."To read the entire issue of Miami Today online, subscribe to e-MIAMI TODAY, an exact digital replica of the printed edition.