6% Commercial Lease Tax Unlikely to be Trimmed this Year

It looks like proponents of doing away with Florida’s commercial lease tax will have to wait another year.

The tax is a 6% charge that tenants of commercial property typically pay on top of their rent to landlords, who are supposed to forward it to the state.

Two bills filed for the current legislative session in Tallahassee have been stuck in committee without a hearing, and it seems it’s going to stay that way.

“It’s not going to happen this year,” said state Rep. Greg Steube, a Bradenton Republican who filed House Bill 11 to reduce the tax by one percentage point each year until it is eliminated. He said his goal is to encourage businesses and to create jobs.

The opposition has come from legislators who don’t want the state to give up that tax revenue, estimated at $1.2 billion to $1.4 billion a year. Considering that the annual state budget is about $74 billion, Mr. Steube said, it’s not that much money to sacrifice.

However, he said, getting it done this year was tough because legislators decided to sacrifice about $400 million in state revenue in approving a decrease in Florida’s driver’s license fees.

Still, Mr. Steube said, with Florida’s economy doing better and state sales tax revenues rising, he likes the bill’s chances next year.

“I really think next year will be the year we can get it through,” he added.

Meanwhile, state Sen. Dorothy Hukill, a Port Orange Republican who has been thwarted in her past efforts to end the tax, has filed a bill for the current season that would reduce the tax by just one percentage point to 5%.

However, even her more modest proposal seems to be going nowhere.

“We’re the only state in the country that charges a sales tax on a commercial lease,” she said.

Ms. Hukill said she still would like to abolish the tax, but this time she thought a reduction might be more palatable to legislators than doing away with it all together.

Her proposal for this session, Senate Bill 176, has been stuck in committee and hasn’t been scheduled for discussion and she expects that committee might wrap up its business in a week or so.

“It’s not a good sign,” Ms. Hukill said.

The lease tax essentially affects three sectors of commercial tenants: retail, industrial and office, said Marc Feigelson, a partner with South Florida accounting firm Kaufman Rossin.

He said large companies that lease a lot of commercial space – such as Wal-Mart, Publix, Macy’s and other “big box” retailers – would save the most from a decrease or repeal of the tax.

In the tri-county South Florida region, (Miami-Dade, Broward, Palm Beach counties), Mr. Feigelson estimated commercial tenants would save about $95 million a year overall if the tax were eliminated. The tri-county area accounts for about 40% of the state’s rental base for commercial property, he said.

While Florida is the only state with such a tax, he added, how much benefit it would bring to businesses here by reducing it is questionable, although eliminating the tax could be “impactful.”

One thing that could thwart the state’s purpose of lowering or eliminating the lease tax to make the business climate more affordable would be if commercial landlords see it as an opportunity to raise rents, resulting in no savings for tenant businesses.

However, Mr. Feigelson noted that commercial leases are often long-term deals, so in many cases landlords wouldn’t be able to boost rents on a whim.