Florida is the only state that imposes sales tax on the lease of commercial real property. Over the last several years, this tax rate has been reduced in increments from 6.0% to 5.5%. Under recently enacted legislation, this rate will be further reduced to 2.0%. However, this rate reduction will not go into effect until two months after Florida’s Unemployment Compensation Trust Fund is replenished to pre-pandemic levels. Depending upon future unemployment claims, Florida economists estimate this may occur in 2024 or 2025. The 3.5% reduction is estimated to save commercial tenants approximately $1.2 billion annually. The local sales tax portion of the commercial rent tax is not changed by the new legislation.
On April 19, 2021, Florida Senate Bill 50 was enacted into law. The legislation modernizes Florida’s sales and use tax system and imposes tax collection obligations on remote sellers and marketplace providers. Among the many reforms in the new legislation is the imposition of sales tax on “remote sales” and requiring tax collection by sellers lacking a physical presence in Florida. Remote sellers (seller with no physical presence in Florida) are required to collect Florida tax if they have in excess of $100,000 of retail sales for delivery into Florida in the previous calendar year. The new legislation also extends these sales tax collection obligations to marketplace providers that facilitate and collect payment for sales made by remote sellers utilizing their platform. In such instances, the marketplace provider, rather than the remote seller, would collect and remit Florida sales tax. These remote seller and marketplace provider obligations become effective July 1, 2021.
The new legislation also provides a “safe harbor” from potential past Florida tax liability. A remote seller required to collect and remit Florida tax under the new legislation will be relieved from liability for tax, penalty, and interest due on remote sales made before July 1, 2021, if they register with the Florida Department of Revenue before October 1, 2021. A similar safe harbor is provided for marketplace providers.
The Florida Department of Revenue has granted relief to certain adversely affected taxpayers suffering from business interruptions caused by COVID-19. This relief extends the deadlines for reporting and remitting property tax and sales and use tax for affected taxpayers.
Florida property tax assessments for the 2019 tax year are generally due on March 31, 2020. The Florida Department of Revenue has applied an extension to all 67 counties in Florida, pushing the due date on property taxes back to April 15, 2020 for all taxpayers, regardless of whether the extent a taxpayer’s ability to pay has been affected by COVID-19.
The Florida Department of Revenue has also provided an extension for businesses to remit sales and use taxes to the state and file related tax returns, but this extension only applies to certain Adversely Affected Taxpayers rather than any taxpayer collecting sales and use tax. To be treated as an Adversely Affected Taxpayer and qualify for the sales and use tax deadline extensions, a taxpayer’s business must experience one of the following:
- The business closed in compliance with a state or local government order and had no taxable sales transactions as a result; or
- The business experienced sales tax collections in March 2020 that are less than 75% of March 2019 sales tax collections; or
- The business was established after March 2019; or
- The business is registered with the Department to file quarterly.
Florida’s sales and use tax is the state’s largest source of revenue, producing over $26 billion annually for the state. Sales and use tax, along with other related tax returns and payments, are generally due on the first day of the month following the month of collection and are considered late if filed after the 20th day of the month. The Florida Department of Revenue has extended this due date to April 30, 2020, for sales tax collected in March for Adversely Affected Taxpayers. Taxpayers who do not fall within the definition of Adversely Affected Taxpayer must still follow the normal due date of April 20, 2020.
For businesses unable to meet their March 20 deadline for collections of February sales and use tax, the Florida Department of Revenue has waived penalty and interest on late payments if the taxes are reported and paid by March 31, 2020.
The Florida Department of Revenue’s emergency order extending the property tax filing and payment deadline is available on the Department’s website.
The Florida Department of Revenue’s emergency order extending the sales and use tax filing and remittance deadline is also available on the Department’s website.
Governor Ron DeSantis signed House Bill 7123 on May 15, 2019, which reduces the state sales tax rate on commercial real property leases from 5.7 percent to 5.5 percent effective January 1, 2020. Prior legislation reduced the general 6 percent state sales tax rate for commercial real property leases to 5.8 percent for 2018 and to 5.7 percent for 2019. There is no reduction to the local option surtax, which is imposed in 0.5 percent increments by many Florida counties. So, for example, effective January 1, 2020, the applicable rate for commercial real property leases in Sarasota County would be 6.5 percent (5.5 percent level sales tax plus Sarasota County’s 1 percent local option surtax).
States desperate for an influx of cash just received a blessing from the United States Supreme Court through the Court’s decision in South Dakota v. Wayfair. The decision reverses prior decisions in Quill v. North Dakota and National Bellas Hess v. Department of Revenue of Illinois, which provided that only a business with a physical presence in a state could be required by that state to collect sales tax. In South Dakota v. Wayfair, the Court found that a “substantial nexus” with a state, rather than physical presence, is all that is required for a state to have the power to require an out-of-state business to withhold and pay sales tax.
For years, businesses have avoided the collection of sales tax on online sales by working around the physical presence requirement. Catalogs and phone orders were the original avenues allowing a business to reach more customers without establishing a physical presence in new jurisdictions. The growth of online sales has only compounded the problem faced by state budgets.
Until South Dakota v. Wayfair, a business making an online sale to a customer located in a state where that business does not have a physical store could not be required to collect sales tax on that sale. The sales tax owed would, in theory, be paid directly by the customer, with the customer required to report the sale and pay a use tax to his or her home state. Such use taxes are nearly impossible for states to enforce, with less than two percent of taxpayers ever reporting the use taxes they owe. Unfair competitive advantages have arisen as online retailers sell their goods for a lower, tax-free price than what could be offered by a local store selling from a physical location and required to collect sales tax at the time of sale.
States have attempted to fight back against the physical presence requirement through a number of different tax laws and strategies. The law brought before the Supreme Court in South Dakota v. Wayfair required any business with $100,000 or more of sales delivered to South Dakota or engaging in 200 or more separate transactions for the delivery of goods into the state to withhold and pay sales tax directly to the state. In upholding the law, the Court defined substantial nexus as when a taxpayer “avails itself of the substantial privilege of carrying on a business in that jurisdiction.”
With states having broader reach to directly tax sales, we can expect a more level playing field between online retailers and brick and mortar shops. We can also expect states looking to expand the reach of their sales tax laws to pass new legislation affecting a broader number of businesses. Businesses conducting sales online to customers in other states must be aware of new requirements a state may impose on the collection and payment of sales tax and what sales may be subject to the withholding of tax by the seller.
The Florida Department of Revenue recently issued a Tax Information Publication (TIP No. 17A01-08) offering guidance on the new sales and use tax exemption for animal and aquaculture health products that came into effect on July 1, 2017. Under the new exemption, animal health products administered to, applied to, or consumed by livestock or poultry to alleviate pain or cure or prevent sickness, disease, or suffering are exempt from sales tax. In addition, aquaculture health products that are used by aquaculture producers to prevent fungi, bacteria, and parasitic diseases in the production of aquaculture products are also exempt from sales tax. To be eligible for these exemptions, the purchaser must furnish the seller with an exemption certificate stating that the purchased item is exclusively for an exempted use. The TIP provides details on the contents of the exemption certificate.
The 11th Circuit Court of Appeals recently ruled that leases of commercial real estate within casinos owned by the Seminole Tribe of Florida to non-Indian corporations are not subject to Florida sales tax. Florida imposes sales tax on commercial rent payments. However, the Court of Appeals upheld the decision of the federal district court and found that Florida’s commercial rental tax when applied to land on Indian reservations is preempted by federal law. More specifically, the court ruled that the Indian Reorganization Act of 1934 prohibits state taxes on indian land rights, including a tax on the lease of indian land rights. The full opinion can be found here:
Florida House Bill 33, which was enacted just a few weeks ago, provides a number of tax cuts and incentives. The bill’s key provisions include:
1. A $60,000 cap on the amount of sales tax paid on repairs of a vessel, which would apply to a repair costing in excess of $1 million;
2. An expansion of the number of sales tax exemptions for agricultural equipment, including aquacultural products and feed for aquacultural products, storage, equipment, irrigation equipment, trailers, and plant stakes;
3. Changed the corporate income tax credit program from a first-come first-served basis to a prorated credit and limited the target industries allowed to claim the credit;
4. An additional $14 million for the corporate income tax research and development tax credit program in 2016;
5. A sales tax exemption on admissions for gun club memberships;
6. An extension of the community contribution tax credit programs to June 30, 2018, and a $3 million increase in the tax credit cap for housing projects;
7. An additional $16.6 million to be spent in fiscal year 2015-2016 on the brownfields tax credit program;
8. A 1.73% Communications Services Tax reduction, which went into effect July 1; and
9. A 10-day back-to-school sales tax holiday from August 7 through August 16.
Yesterday, in American Business USA Corp. v. Department of Revenue, the Fourth District Court of Appeal for Florida ruled that the Florida Department of Revenue could not impose sales tax on sales of flowers and other tangible personal property made by a Florida corporation over the internet to out-of-state customers for out-of-state delivery. The taxpayer would use “local florists” to fill the out-of-state orders, and so the flowers and other inventory items were never stored in or brought into Florida. The court concluded that the sales did not have “substantial nexus” with Florida, and therefore imposing tax on the sales violated the dormant commerce clause of the US Constitution.
A link to the case is below:
On behalf of a client, Williams Parker recently obtained a Technical Assistance Advisement from the Florida Department of Revenue (the “Department”) that leases of nursing homes and assisted living facilities are exempt from sales tax to a greater degree than currently provided in the Florida Administrative Code. Oftentimes, the operator of a senior living facility leases the real estate from another legal entity, which may or may not be related. In interpreting the statutory exemption for leases of residential facilities for the aged, the Florida Administrative Code provides that only the areas of a senior living facility that are accessed and used by residents (excluding, for example, the kitchen portion of a cafeteria and administrative office areas) are exempt from sales tax. However, a trial court opinion (from the 18th Circuit Court for Brevard and Seminole counties) held that all areas of senior living facilities (not just those areas accessed and used by residents) are exempt, except for those areas leased for separate commercial purposes, such as a portion of the facility leased to a bank or hair salon. The Technical Assistance Advisement obtained by Williams Parker (i) affirms that the Department will follow the holding of the trial court outside of the 18th Circuit, and (ii) extends the holding of the trial court to leases of equipment and other tangible personal property owned by the landlord and used by the operator of the facility, at least where the lease is silent regarding any separate consideration for the tangible personal property.
A copy of the Technical Assistance Advisement can be found here: https://revenuelaw.state.fl.us/LawLibraryDocuments/2014/05/TAA-118253_14A-012%20redacted%20_%20summary%20RLL.pdf
If you have any questions regarding the Technical Assistance Advisement or other questions regarding Florida taxes, please contact: