The Florida Commercial Rent Tax: Four Traps for the Unwary

As the only American state with a sales tax on commercial rentals, Florida has a history of presenting businesses with unwelcome surprises in the form of audit assessments. What follows below is a summary of the top four misunderstandings that create taxpayer exposure.

  1. Tax base is broader than just “rent.” The measure of tax is not limited to amounts the parties characterize as “rent” or “license fees.” For example, common area maintenance (CAM) charges, which are often treated separately and not classified as “rent” in a lease, are generally taxable. Another example is ad valorem taxes that the tenant is required to pay. From the perspective of DOR, the key determinant of whether an amount is included in the sales tax base is whether the amount must be paid as a condition of continued occupancy. According to this view, the parties’ characterization of the amount in transaction documents is irrelevant. DOR is not always successful in taking this position. If the amounts paid are attributable to intangibles or services, for example, they may be excluded from the measure of tax. The manner in which the parties structure the transaction is important.
  2. Tax is not limited to traditional “rentals.” The common understanding of “rental” in the real property context entails a landlord-tenant relationship. Features of such a relationship generally include a right to occupancy of specified land or improvements, or a specified portion thereof, for a specified period of time, in return for specified consideration. As originally enacted, the commercial rent tax law was fairly read as limiting the tax to such transactions. In 1986 the law was changed to extend the tax to real property “licenses.” A license is generally a revocable privilege to enter upon real property; it need not be for a prescribed term or prescribed space. Consideration for a license is often characterized as a “license fee.” Fact patterns to which the Florida Department of Revenue (DOR) has applied the expanded tax include concessions, consignments, and agreements whereby inanimate objects occupy the space of another (e.g., gaming machines, vending machines). And the assertion of tax does not depend upon the existence of a written agreement. If DOR concludes from accounting records or otherwise that amounts are being paid for use or occupancy of real estate, it asserts the tax. In fact, DOR will often attempt to reclassify a transaction as a taxable lease or license, where the parties to the transaction framed it differently and had no intention to create a lease or license. Despite the broadened reach of the tax, DOR’s attempts to apply it in specific circumstances are often flawed or debatable.
  3. Transactions between related entities are taxed. Businesses that operate through multiple legal entities are accustomed to treating their enterprise as a single unit for income tax and financial reporting purposes, so that transactions between the entities have no tax effect. However, the sales tax in general and the commercial rent tax in particular apply to transactions between related entities. Intercompany accounting alone has been sufficient to support the tax, and DOR has also taken the position that dividends paid by a subsidiary to its parent are actually rent by another name.
  4. The tax obligation is on both parties. With few exceptions the landlord or licensor is required to collect the applicable tax. However, a tenant or licensee that cannot prove the tax was paid to the landlord or licensor is subject to assessment. The tenant/licensee is not required to police the landlord or licensor to ensure that the tax was remitted to the State, but must have records establishing payment of the tax to the landlord or licensor. If the landlord or licensor does not charge and collect the tax, the tenant or licensee should register with DOR and remit the tax with returns.

The foregoing is not an exhaustive treatment of the commercial rent tax but is intended to enhance the reader’s awareness of issues which often become problematic for taxpayers.

About the Author:
Robert S. Goldman offers clients over 30 years of experience practicing in state and local taxation. He represents clients in audits, protests, litigation, rulemaking, tax planning, and legislation. His experience includes all the major state and local taxes (sales taxes, property taxes, corporate income taxes, communications service taxes, gross receipts taxes, insurance premium taxes, documentary stamp taxes). Mr. Goldman’s range of experience spans diverse industries including retail, manufacturing, energy, leasing, hospitality, telecommunications, government contracting, health care, transportation, and the service sector. He may be reached at

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