Florida Tax Tip of the Month: The True Costs of Rents and Other Paid Uses of Real Property.
Cost of Rents and Other Paid Uses of Real Property.
Nydia Menendez, The Florida Tax Girl - Oct 31, 2023
The True Costs of Rents and Other Paid Uses of Real Property
1. Familiar Faces, Taxable Spaces:
Brace yourself for this twist! Even when the parties involved are related, sales tax is imposed on presumed rent. Imagine this: Company A owns real estate, and guess who occupies it? Company B, which is owned by the same person(s) behind Company A. Now, here's the plot twist—any compensation paid by Company B for the property's operating expenses is presumed to be rent. This usually includes mortgage payments, possibly insurance and utilities. Other suspect expenses could be property taxes and common area maintenance. That's right, these types of payments if made “directly or indirectly” by Company B could be presumed to be rent, taxable rent!
2. Accrual vs. Cash:
Sales tax is usually due on an accrual basis. However, when it comes to commercial rent, the tax is due when payment is "received." It adds a cash basis flavor to the tax liability for commercial rents. Something to keep in mind!
3. Tax Rates and Roller Coasters:
The current state tax rate for commercial rent sits at 5.5%, not the standard 6%. But buckle up, my friend, because the Florida legislature loves tinkering with tax rates. They've promised reductions in the rate, supposedly once the unemployment compensation trust fund gets a boost through specific funding from sales tax legislation passed in 2021. Hold onto your hats for potential changes!
4. More Than Just Buildings:
Brace yourself for a wild ride through the world of Florida sales tax on commercial rents and other real property! Sales tax also applies to parking spaces, storage facilities, docks, signage, and even transient rentals like hotels, Airbnb, and residential leases for a term of six months or less. It's a tax party, and everyone's invited!
5. Audit Alert:
Since this is a revenue goldmine for Florida, sales tax compliance on commercial rents receives specific attention during audits. The Department will be eager to examine the lease, invoices, and confirmation that sales tax has been duly remitted. In fact, they'll even cross-reference their internal records to ensure the presumed landlord has paid the sales tax on the rents collected. If you're unable to demonstrate that sales tax was handled appropriately in your business operations, they will assess the USE tax as a separate exhibit in the audit report. Yikes!
These are just a few examples of the nuanced world of Florida sales tax. As you can see, these subtleties can lead to hefty assessments for unsuspecting taxpayers. Knowledge is power, my friend!
So, here's the Florida Tax Tip of the Month: Ensure your clients are paying sales tax at the appropriate rate on their commercial rents. It's a small step that can save them from big headaches down the road.
Wishing you sunny skies and stress-free tax seasons,
Nydia, The Florida Sales Tax Girl
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