Most Floridians are aware that sales tax is due when goods are purchased, except for items like food and medicine.  What Floridians may not be aware of is that rental income, both commercial and residential transactions, is subject to sales tax.  For both commercial and residential rental transactions there are considerations that should be evaluated to determine a taxpayer’s compliance in these areas.

Residential
Commonly referred to as “transient rentals,” unless otherwise exempt, sales tax must be collected on the rental of residential rental property. This can include such properties as a single-family dwelling, duplex, or beach house.  For sales tax purposes, the rent amount is the base rent plus any charges for the use of items, services, or other charges to be paid as a condition of occupancy of the property.  In addition, the state sales tax rate of 6%, county discretionary surtax, as well as other miscellaneous tax, may apply to the rental transaction depending where the rental property is located. Available for some tangible property transactions is a $5,000 taxable value limitation for calculating the discretionary surtax due. For a qualifying transaction in Leon County, the most discretionary surtax due would be $75 ($5,000 x 1.5% Leon County Surtax Rate). There is no such limitation on rentals. 

There are certain residential rentals exempt from sales tax. One such exemption is whereby the lessee of the property enters into a lease agreement for continuous residence longer than six months. In order to qualify for this exemption, there must be a written lease signed by both the lessee and lessor. 

Commercial
Commercial rental transactions, those rental arrangements between a business enterprise and a property owner, are subject to the state sales tax rate of 6% and the discretionary surtax rate in the county in which the property is located. Available for some tangible property transactions is a $5,000 taxable value limitation for calculating the discretionary surtax due. For a qualifying transaction in Leon County, the most discretionary surtax due would be $75 ($5,000 x 1.5% Leon County Surtax Rate).  There is no such limitation on rentals.  For sales tax purposes, the rent amount is the base rent plus any charges for the use of items, services, or other charges to be paid as a condition of occupancy of the property. Some common examples of these items are real estate taxes, insurance, and common area maintenance charges (CAM). Even for transactions where business owners and commercial real estate owners are leasing to themselves, sales tax can be due. 

Should a taxpayer believe they are not in compliance with these rules, there are programs provided by the Department of Revenue to help the taxpayer become compliant and provide relief from penalties and possibly interest. These programs are the Voluntary Disclosure Program and the Certified Audit Program. Should a taxpayer be interested in finding out more about these programs, please contact Michael Kalifeh or Canita Gunter Peterson at (850) 668-8100.