A Florida law taking effect this week that repeals a decades-old sales tax on commercial leases is expected to save tenants across the state $900 million annually and pave the way for new deals and business expansions.
The new law, which was officially signed by Gov. Ron DeSantis in June and went into effect Oct. 1, eliminates the state’s business rent tax and county surtaxes on commercial leases. That means Florida has finally joined the rest of the country after decades of being the only state to levy a tax of this kind since the 1960s, said Mike Griffin, co-head of the Florida region and Tampa-based vice chairman for Savills, in an interview with CoStar News.
“We've had this bogey out there as being this outlier that we don't want to be, which is charging sales tax on commercial leases … this is just a bad tax," Griffin said.
The tax didn’t just apply to base rent but included additional charges that were passed onto the tenant, such as fees for common area maintenance, utilities, insurance, real estate taxes and property management.
Further complicating the issue were county surtaxes. While Florida’s commercial lease sales tax was 6% in 2017, and gradually lowered to 2%, counties were able to levy their own taxes on commercial leases over the state’s.
For small leases, the tax may have cost only a few hundred dollars, but for larger footprints, costs could become prohibitive and have tenants reconsidering their expansion plans across Florida.
“That made a difference on key decisions when margins are thin to begin with when it comes to the totality of a real estate commitment,” said Griffin.
Now, however, Griffin expects the business lease tax repeal to generate about $900 million in tenant savings across the state annually, or a “significant amount of capital that can be reinvested in their businesses,” to hire more employees, build out their spaces and add new locations.
But perhaps more importantly, repealing the commercial lease sales tax strengthens Florida’s hand when it comes to recruiting companies to expand to the state, as opposed to somewhere else.
"I know this is going to fuel additional growth,” said Griffin. “This will allow companies to invest more in their talent and their workplace and remain competitive."