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Only Florida Taxes Commercial Leases. NAIOP Wants To End That.

Florida is the only state in the nation to charge sales tax on commercial leases, which it has been doing since 1969. The rate was 5.7%, but in the annual legislative session that ended this month, lawmakers agreed to roll it back to 5.5% starting in January. It will be the third fraction-of-a-percentage-point rollback in three years. 


Darcie Lunsford, president of the South Florida chapter of NAIOP — which formerly stood for the National Association for Industrial and Office Parks but now the organization calls itself the Commercial Real Estate Development Association — and executive vice president of Butters, told Bisnow that NAIOP Florida was part of a coalition that lobbied for this change and hopes to eventually eradicate the business rent tax entirely. 

"We've been cutting away at it for years because it's kind of a regressive tax," she said. "It does sap money that could otherwise be used for investment."

Lunsford said NAIOP is looking out for tenants. She said that cutting the tax could make Florida more competitive with places like Georgia and Tennessee in terms of luring businesses.

"The tax is imposed not only on the base rent, but also on any additional rent, or any consideration required to be paid by the tenant as a condition of occupancy," law firm Greenberg Traurig explained in a blog post in December. "As a result, the tax is also due on the tenant’s share of common-area maintenance charges, real property taxes, and most other charges required under the lease."

However, eliminating it entirely could be a challenge. Because Florida does not have an income tax, the state must generate revenue in other ways. Lunsford said the sales tax on commercial leases brings in about $1B a year for the state. An analysis prepared for the Florida Senate said that the new bill, CS/HB 7123 (which also provides for a three-day, back-to-school sales tax holiday and a seven-day disaster preparedness sales tax holiday), will cut $73M from the state budget annually.

NAIOP also lobbied for legislation that requires local governments publicly post permit and inspection fee costs and how that revenue is being applied within government functions. The group argued that with robust construction over the past few years, counties and municipalities are taking in more fee revenue, but are not processing permits any more quickly. 

The group also supported legislation that prohibits a local government from collecting impact fees before issuance of a building permit except in the case of water and sewer connection. The new law is effective July 1.

NAIOP Florida also supported legislation that specifies that when governments require that an affordable housing component be included within a new project, this cost be fully offset. That package also mandates that local jurisdictions review and respond to development applications within 30 days, and that if development orders are challenged, the losing party must pay attorneys' fees.

Gov. Ron DeSantis has not yet signed this package into law and critics are asking that he veto it, arguing that it will cripple anyone who challenges municipalities if they deviate from master plans.

Lunsford admits that can be a double-edged sword for the real estate industry, since even developers sometimes get upset with governments' deviations from master plans and want to challenge them.

But, she said, there are cases when a project is approved after public hearings and someone files a "frivolous lawsuit" against it.

"Even though the developer followed the letter of the law, it delays the project," she said. 

The law would still allow people to litigate, she said, adding that hurdles to these lawsuits can be a good thing.

"If you file and you are correct, you're not out anything," she said. "This requires people to think twice before trying to challenge a lawfully approved development order."

Related Topics: NAIOP, South Florida, Florida