The Business Rent Tax Hurts Growth, Economic Development and Commercial Real Estate
Florida is the only state in the country that currently applies a business rent tax to every company, big or small, that rents commercial space in the state. Given its harmful impact to the state’s economy, NAIOP of Florida is leading the charge to have this burdensome tax on businesses eliminated through gradual reductions of the rent tax in 1 percent increments, and eventually fully repealed.
The state of Florida applies a sales tax to every commercial lease in the state. The sales tax on business rents is the same rate applied to goods and services, which is 6 percent plus any local sales tax option. To put this in perspective, a company renting a commercial space for $10,000 a month pays $600 in sales tax each month, or $7,200 a year. Companies in neighboring states, like Georgia or Alabama, do not pay a similar sales tax. Overall, the business rent tax costs Florida businesses $1.7 billion a year.
A 2013 report by Fishkind and Associates, titled “Economic Impact of Sales Tax Exemption for Commercial Leases in the State of Florida,” estimates that the repeal of the business rent tax could create up to 185,000 jobs and generate $20 billion in economic activity. Just a 1 percent reduction in the rent tax would also result in $286.9 million saved annually by Florida businesses that could be infused back into the economy for job creation and expansion.
We recognize that the $286.9 million in savings for businesses also means that state revenues will be reduced by that same amount. However, Florida’s budget surplus is expected to be around $635 million for the 2016-2017 fiscal year and may grow higher once the fourth quarter numbers come in. In addition, the state could also offset the lost revenue from this tax by enforcing the collection of the sales tax on internet purchases, a long-held legislative priority of NAIOP of Florida. The National Conference of State Legislatures estimates that in 2012 the state of Florida lost $1.48 billion in uncollected sales tax on internet purchases.
NAIOP of Florida is out front in supporting legislation moving through both chambers of the state capitol that will reduce the business rent tax as a positive and necessary first step towards its eventual elimination. This relief will lessen the tax burden on every business that rents commercial space, spur economic growth and make the state more competitive in attracting and retaining companies. NAIOP is further encouraged by Governor Rick Scott’s support for a 1 percent reduction of the business rent tax in his proposed 2017 budget.
However, while the governor’s support and these legislative proposals are encouraging signs that action will be taken, there are challenges and no givens in the fiscal debate over a balanced state budget where expenditures must match revenues. We must make sure that the elimination of the business rent tax does not become a bargaining chip that is removed at the end of the fiscal debate in order to achieve a balanced budget. Because of this, NAIOP and its members, including those from other states that may lease commercial space in Florida, must remain engaged and diligent in supporting these legislative efforts by contacting the governor and other state leaders in support of eliminating the business rent tax starting this year through a 1 percent reduction.
Florida is the Sunshine State, but businesses care about the bottom line. It is time for state leaders in Tallahassee to act and remove the stigma hanging over our state as the only place in the country where small and large companies pay such a tax.
Alan Sheppard is a shareholder with Greenberg Traurig LLP and the president of NAIOP of Florida.