MIAMI—Florida commercial real estate groups are banding together to support Gov. Rick Scott’s 2014-2015 “It’s Your Money Tax Cut Budget.” Scott is committed to eliminating $500 million in taxes and fees for the upcoming legislative session.
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 in support of the legislation. Florida Realtors, the Miami Association of Realtors, NAIOP, ICSC, and SIOR are also on board.
“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,” says Florida CCIM chapter president Peter Barnett. Florida is the only state that imposes a state-wide sales tax on commercial leases.
Currently, a 6% state tax is imposed on the total rent charged under the lease, however the Department of Revenue (DOR) has taken the position that any payment requirements as a condition of occupancy under a commercial lease is taxable as rent. Florida Statute §212.031 addresses sales tax on leases and Florida’s DOR interprets the provisions in Florida Administrative Code Rule 12A-1.070.
The bottom line hurts the bottom line because 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. Essentially, supporters contend, this is double taxation. What’s more, individual counties and taxing authorities may impose additional taxes. Miami-Dade County is a good example, charges 1% additional and bringing the total taxation to 7%.
Proponents of Scott’s initiative argue that this additional tax puts Florida at a competitive disadvantage when attracting new businesses to the state, and that the tax forces landlords to charge more for rent than comparable facilities just across state lines. The tax also increases record keeping burdens as they become tax collectors for the state, they insist.
Scott announced on January 28th that his budget proposes reduction of the tax on commercial real estate leases by one-half of a percentage point. That would drive a savings of about $104 million the first year alone. According to Florida CCIM research, the impact of this reduction would be $500 million gain in terms of jobs and economic activity.
Two additional 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% to 5%.
“With the support of the governor, these efforts are gaining considerable traction,” says John Dohm, a licensed real estate broker for more than 25 years who analyses important issues affecting the commercial real estate industry and currently sits on the board of the CCIM Miami District. “Compelling cases have been made that the increased economic activity more than offsets the decreased collections.”