United States: Florida Enacts Legislation Reducing Commercial Rent Tax Rate, Amending Sales Tax And Other Provisions

On May 25, 2017, Florida Governor Rick Scott signed legislation adopting the reduction of the state's sales tax on non-residential leases and licenses of real property.1 The rate is reduced from 6 percent to 5.8 percent effective July 1, 2017, and may decrease further in the future. Several provisions, mainly relating to sales tax exemptions for data center property and other items, were also included in the legislation.

Commercial Rent Tax


For nearly 50 years, Florida has imposed a sales tax on "renting, leasing, letting, or granting a license for the use of any real property."2 Specifically exempted from the tax are certain property types, such as property used exclusively as dwelling units.3 The tax historically has been imposed at a state rate of 6 percent plus any applicable local surtaxes.4 The tax applies not only to base rents, but to additional fees paid pursuant to a lease or license agreement, such as common area maintenance fees, ad valorem taxes, insurance premiums, and other additional rents.5 The tax also has wide application, being applied not only to conventional leases for buildings and land, but also to arrangements where the owner of a kiosk or equipment pays fees to the owner of property pursuant to a revenue sharing or commission agreement (e.g., revenue sharing consideration paid by owners of ATMs, coin-operated vacuums, sales booths, etc., to the businesses where such items are located).6 Florida is the only jurisdiction to impose a state-level tax on leases or licenses to use real property, but New York City imposes a local-level tax.7

Rate Change and Proposals

The legislation reduces the commercial rental tax rate from 6 percent to 5.8 percent, beginning on July 1, 2017.8 The law also includes a timing provision, clarifying that the rate applicable to any commercial lease will be the rate in effect at the time that a tenant or person is entitled to occupy or use the real property, not the date on which the rent or fee payment is due or paid.9

Data Center Property Sales Tax Exemption

Similar to legislation adopted by numerous states in the last several years, Florida is encouraging the development of data centers in the state through broad sales tax exemptions for property used exclusively in data center operations.10 Data center property eligible for the exemption includes construction materials, components, machinery, equipment, computers, servers, installations, redundancies and software, as well as electricity used exclusively at the data center.11 To be eligible for the sales tax exemption on data center property, the owners and tenants of the data center must invest at least $150 million for the data center, and the data center must have a critical IT load12 of at least 15 megawatts (with at least 1 megawatt dedicated to each individual data center owner or tenant).13

The exemption from sales tax may be taken once a temporary tax exemption certificate is applied for, and issued by the Florida Department of Revenue.14 These eligibility requirements must be met no later than five years after construction of the data center begins.15 If these requirements are not met, a recapture provision applies to the sales tax that was not paid on the data center property, along with the imposition of applicable interest and penalties.16 Temporary tax exemption certificates may not be issued by the Department after June 30, 2022.17

Other Sales Tax Exemptions

The legislation contains numerous sales tax exemptions, the most significant of which are listed below:

  • Effective July 1, 2017, certain building material purchases, rentals of tangible personal property, and pest control services used in new construction in "rural areas of opportunity" (as designated by Governor Scott) are exempt.18 The exemption is claimed through a refund of paid taxes, in an amount of up to $10,000 per parcel of real property.19
  • Effective July 1, 2017, certain animal health products for the benefit of livestock or poultry, along with aquaculture health products used by aquaculture producers to prevent disease are exempt.20
  • A back-to-school sales tax holiday will occur from August 4-6, 2017, during which certain clothing, school supplies and personal computers will be exempt.21
  • Effective January 1, 2018, tampons and similar products will become exempt.22

Corporate Tax Filing Extensions

Corporate taxpayers that are granted federal income tax return filing extensions and comply with the estimated payment rules automatically receive six-month Florida extensions.23 However, a recent amendment to this provision provided corporate taxpayers (for taxable years beginning before January 1, 2026) with a seven-month extension if their tax year ended on June 30, and a five-month extension if their tax year ended on December 31.24 Effective for tax years beginning on or after January 1, 2016, the legislation eliminates the five-month extension reference, effectively allowing December 31 year-end taxpayers a six-month extension.25

Community Contribution Tax Credit (CCTC)

Special benefits are available through the CCTC to persons that make certain donations (community contributions) made for use in certain projects that benefit persons with special needs, as well as low-income households.26 The CCTC may be taken as a refund against state sales and use taxes, corporation income taxes, or insurance premiums taxes. While the CCTC sunset date of June 30, 2018 has been eliminated, ensuring that the program will remain in effect indefinitely, the total amount of tax credits available under the CCTC program will be reduced from $21.4 million in Florida's 2017-18 fiscal year to $14 million in future fiscal years.27


The commercial rental tax is estimated to generate approximately $700 million annually, and as such, attempts to reduce or eliminate this large revenue stream have been met with resistance. However, Governor Scott has deemed Florida's tax on commercial rentals and leases an "unfair tax," as Florida is the only state to collect this type of sales tax. Governor Scott has previously called for the elimination of the tax, and in prior legislative sessions, he has asked the Florida legislature to reduce the rate of the tax by 0.5 percent. In addition, lawmakers have undertaken independent efforts to chip away at the tax, some through a one-time rate reduction to 5 percent, and others by phasing out the tax over a decade.28 Likewise, certain industry groups representing builders, contractors, realtors, retailers, restaurants, and lodging establishments have been supportive of these efforts,29 as the tax has been accused of hurting small businesses and creating a disincentive for companies to do business in Florida.30

At this point, it is unclear whether the commercial rent tax rate reduction adopted in this legislation is an isolated change or whether it may signal the beginning of the end for Florida's tax on commercial rents. There are questions as to whether repealing the tax would have a significant impact on Florida's economic environment. For instance, a 2014 report by the Office of Economic and Demographic Research suggested that the tax may not have much impact on the state's business climate, specifically noting that "[s]ince the leasing market has demonstrated a history of growth and manageable vacancies over the long run, it is unlikely on its face that the rental tax has materially driven a significant number of the economic actors into other paths."31 According to the report, such alternative paths would be demonstrated by private ownership in lieu of leasing by potential tenants, or alternative investments in lieu of the expansion of leasing stock. "By most accounts, [however], the commercial leasing industry in Florida is robust relative to many other states."32

The report also cites other studies finding that "Florida had average to above average per capita levels of office and retail space, and was on par with Texas with industrial space," and near the start of the decade, "South Florida, Orlando and Tampa [ranked] among the top 20 most active U.S. markets for commercial real estate."33 Additionally, the tax has been in place for nearly 50 years, so "the market has fully adjusted to its existence and has moved to a post-tax equilibrium.34

Given the uncertainty of the economic effect of the commercial rental tax, some Florida lawmakers will undoubtedly continue to push for repeal of the tax. However, these lawmakers may not continue to receive the same degree of support from the next Florida governor, since Governor Scott is term-limited and will soon be out of office. The agenda of the state's incoming executive and the position of the state's treasury will likely determine the extent to which repeal of the tax will be pursued by the legislature in future sessions.

Beyond the commercial rental tax reduction, the legislation provides significant benefits for companies that want to locate their data center operations in Florida. Further, the legislation could incentivize economic development in the form of new construction in the rural areas of opportunity that are designated by Governor Scott. The continued availability of the CCTC likely will encourage economic development efforts. Finally, the ability to take advantage of the upcoming back-to-school sales tax holiday and the prospective elimination of the "tampon" tax will be welcomed by Florida residents.


1 Ch. 2017-36 (H.B. 7109), Laws 2017.

2 FLA. STAT. ANN. § 212.031(1)(a).

3 Id. However, some rentals of residential property for less than six months may be subject to tax under a different statutory provision. See FLA. STAT. ANN. § 212.03(1) (imposing a tax on transient rentals).

4 FLA. STAT. ANN. § 212.031(1)(c).

5 Final Bill Analysis, H.B. 7109, Florida House of Representatives, June 5, 2017.

6 See, e.g., S & W Air Vac Systems, Inc. v. Dep't of Revenue, 697 So. 2d 1313 (Fla. Dist. Ct. App. 1997).

7 Commercial Rent Tax, New York City Department of Finance Web site. 

8 H.B. 7109, § 21, amending FLA. STAT. ANN. § 212.031(1)(c).

9 H.B. 7109, § 21, amending FLA. STAT. ANN. § 212.031(1)(e).

10 H.B. 7109, § 26, adding FLA. STAT. ANN. § 212.08(5)(s).

11 H.B. 7109, § 26, adding FLA. STAT. ANN. § 212.08(5)(s).1.d.

12 Critical IT load is the amount of electric power capacity reserved for data center owners or tenants to operate their computer server equipment. H.B. 7109, § 26, adding FLA. STAT. ANN. § 212.08(5)(s).1.a.

13 H.B. 7109, § 26, adding FLA. STAT. ANN. § 212.08(5)(s).2.

14 H.B. 7109, § 26, adding FLA. STAT. ANN. § 212.08(5)(s).3.a. A permanent tax exemption certificate is issued by the Department after a determination that the data center requirements have been satisfied. H.B. 7109, § 26, adding FLA. STAT. ANN. § 212.08(5)(s).3.b.

15 H.B. 7109, § 26, adding FLA. STAT. ANN. § 212.08(5)(s).2.

16 H.B. 7109, § 26, adding FLA. STAT. ANN. § 212.08(5)(s).3.c.

17 H.B. 7109, § 26, adding FLA. STAT. ANN. § 212.08(5)(s).4. 

18 H.B. 7109, § 26, adding FLA. STAT. ANN. § 212.08(5)(r).

19 H.B. 7109, § 26, adding FLA. STAT. ANN. § 212.08(5)(r).6.

20 H.B. 7109, § 26, amending FLA. STAT. ANN. § 212.08(5)(a).

21 H.B. 7109, § 52. A disaster preparedness sales tax holiday was enacted and held from June 2-4, 2017. H.B. 7109, § 53.

22 H.B. 7109, § 28, amending FLA. STAT. ANN. § 212.08(7)(ooo).

23 FLA. STAT. ANN. § 220.222(2)(a), (b).

24 FLA. STAT. ANN. § 220.222(2)(d).

25 H.B. 7109, §§ 34, 35, amending FLA. STAT. ANN. § 220.222(2)(d).

26 FLA. STAT. ANN. §§ 212.08(5)(p); 220.183; 624.5105.

27 H.B. 7109, §§ 26, 31, 48, amending FLA. STAT. ANN. §§ 212.08(5)(p).1.e; 220.183(1)(c); 624.5105(1)(c). The $14 million amount consists of $10.5 million for housing and homeownership opportunities, with the remaining $3.5 million reserved for other projects eligible under the CCTC. 

28 For example, the following legislation was considered in 2016: S.B. 116, died in Senate Appropriations Committee, March 11, 2016; H.B. 215, died in Florida House Finance and Tax Committee, March 11, 2016.

29 Kevin Derby, Business Community Rallies Behind Rick Scott's Proposal to Cut Commercial Lease Tax, SUNSHINE STATE NEWS, Dec. 17, 2015.

30 Analyzing the Governor's FY2016-17 Budget and Tax Recommendations, Florida TaxWatch, Nov. 2015.

31 Economic Impact: Sales Tax on the Rental of Real Property, Florida Legislature Office of Economic and Demographic Research, Nov. 15, 2014.

32 Id.

33 Id.

34 Id.

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