The Florida legislature passed HB 7031, which, if signed by Gov. DeSantis, would eliminate the state’s sales tax on commercial real property leases. Florida sales tax rates on commercial leases have been reduced over the last several years to a current state level tax rate of 2% (as opposed to the general 6% tax rate for sales tax on other items). When combined with local option tax rates (generally 1% – 1.5%), the current combined state and local tax rate is 3% – 3.5%. HB 7031 would eliminate the tax, i.e., both the state level tax and the local option tax, rather than merely reduce the tax rate further. This GT Alert provides details on the elimination of the sales tax on commercial leases.

Effective Date

The change is set to take effect Oct. 1, 2025. Note that the tax applies to the period of occupancy, so if rent for October or any later period is prepaid before Oct. 1, 2025, sales tax would not be due.

Some Real Property Rentals Are Still Taxable

Short-term residential rentals and vehicle parking, boat docking, and aircraft hangar rentals would still be subject to tax because the budget agreement only repeals section 212.031 of the Florida statutes, not the separate statute under which short-term residential rentals and parking, docking, and aircraft storage space are taxed (found in Sec. 212.03). Short-term residential rentals refer to any use of residential property unless under a written lease for a period of longer than six months. The sales tax on aircraft storage rentals would include a hangar rental.

Tax Still Due for Occupancy Periods Prior to the Oct. 1, 2025, Effective Date

The tax on commercial rentals would still be due on rental payments for occupancy periods prior to the tax repeal’s Oct. 1 effective date. For example, if a tenant is two months behind in their rent and pays their August and September rent on or after Oct. 1, sales tax would still be due. The same situation would be true for rental adjustments. For example, assume a tenant is required to pay additional rent attributable to pre-Oct. 1, 2025, occupancy periods because the lessor was required to pay additional property taxes after not prevailing in a controversy over the assessed value of the real property. When the lessor charges the tenant for its share of the additional property taxes, sales tax would be charged because the payment relates to an occupancy period prior to the effective date of the repeal.

Successor Liability Still an Issue

Even though no further sales tax would be due for occupancies after Oct. 1, the purchaser of commercial real property would still need to be concerned with potential successor liability for the sales tax obligations of the seller. This is because the Department of Revenue has three years from the time a sales tax return was filed to audit and assess a deficiency for taxes that should have been paid but were not. A purchaser could be relieved of this successor liability if the seller obtained a certificate of compliance from the Department of Revenue.

Consequently, purchasers should continue to require a certificate of compliance for post-Oct. 1 commercial property deals. However, if the seller stops filing sales tax returns, the Department of Revenue might not issue a certificate of compliance. For this reason, commercial property owners should consider continuing to file sales tax returns after Oct. 1, even if there is no sales tax due (a “zero return”) so they would still be able to request a certificate of compliance.

Equipment Rentals Still Subject to Tax

If the owner of real property leases equipment to a tenant, the rental would still be subject to sales tax on the rental of tangible personal property. For example, if the lease of a warehouse includes a provision for separate rental charge for a forklift, the equipment rental charge would be subject to sales tax.