May 25, 2024 - 0 Comments - Taxation -

Florida State Sales Tax Rate on Commercial Leases Drops to 2% on June 1

Florida Senate Bill 50 will go into effect on June 1, 2024. This will result in a reduction of more than 50% in the state’s commercial lease tax from 4.5% to 2.0%. However, this decline does not extend to any fees or taxes at the local level. In Miami-Dade, Broward, and Palm Beach counties, the total tax rate will be 3.0%, a drop of near half from the prior combined level of 5.5%.

Benefits for Commercial Tenants

Tenants in commercial properties should immediately benefit – found money, if you will – from the reduced lease tax. Lower taxes mean decreased overall leasing costs, which can improve cash flow and financial stability for businesses. This is particularly beneficial for small and medium-sized enterprises that often operate on tighter margins. The reduced tax burden can also enable businesses to allocate more resources to growth initiatives, such as hiring, marketing, and expanding their operations. Furthermore, with the reduced cost of leasing space, Florida may become a more attractive location for new businesses, fostering a more vibrant and diverse commercial ecosystem.

Benefits for Commercial Real Estate Owners

For commercial real estate owners, the substantial reduction in the commercial lease tax is also a positive as presumably this will lead to higher rent growth than might otherwise be achieved. The fuel for this rent growth would be that more money is available for rent and related expenses as less is required by the tax man.  For a property with NOI that is 60% of gross income, if half of that savings over time was realized as additional rent, then NOI should increase by 2.08% (1.25% / 60%). Additionally, the lower tax burden can make Florida properties more competitive, potentially increasing demand and occupancy rates. One way or another, lower tax obligations should enhance the profitability of property investments, making Florida a more attractive market for commercial real estate.

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