Florida Senate Bill 50's impact on CRE

Summary

One of the most impactful pieces of state legislation in recent years, Florida Senate Bill 50 (“SB 50”) requires out-of-state retailers and online marketplace sellers doing a substantial amount of business in Florida with no physical presence in the state to collect state sales tax and local discretionary surtax on taxable items delivered within Florida. These changes apply to sales made on or after July 1, 2021. The bill is expected to modernize not only the administration of Florida’s sales tax laws but also end the antiquated bracket system currently used to calculate taxes. Additionally, it will protect businesses from marked increases in reemployment tax rates, will significantly reduce the commercial rentals tax rate (by nearly two-thirds of the current rate), and will replenish the state’s pandemic-depleted unemployment compensation trust fund. Through its implementation, the bill will also help to remove barriers that currently exist preventing new-to-market tenants from entering the state.

It all began with the Wayfair decision

SB 50 moved forward following the U.S. Supreme Court entering its judgment on the South Dakota vs. Wayfair case in 2018, which effectively overturned the “physical presence test”, expanding a state’s abilities to collect sales taxes. Prior to the enactment of the SB 50 legislation, Florida was one of only three states that had not changed their laws to reflect the decision by the U.S. Supreme Court.

How it works

Florida levies a 6% sales tax on the sale or rental of most tangible personal property and a limited number of services, and a 5.5% sales tax on commercial real estate. The state also requires a dealer to add tax to the sales price of taxable goods and services and collect it from the purchaser at the time of sale. SB 50 will provide a safe harbor of protection from potential past tax liability for some marketplace sellers provided they register with the Department of Revenue before October 1, 2021. The bill also prohibits the Department of Revenue from pursuing payment for tax liabilities on purchases occurring before July 1, 2021.

SB 50 will dramatically cut the state tax portion of the business rent tax from 5.5% to 2.0% - approximately 64% - once Florida’s Unemployment Compensation Trust Fund is replenished to pre-pandemic levels, which is expected to occur sometime between 2023 and 2025 depending on the volume of future unemployment claims. Any additional discretionary county surtaxes will remain for now.

Bottom line implications for CRE

The bill is expected to substantially benefit Florida businesses and taxpayers, as Florida is currently the only state that levies a sales tax on the commercial use of another’s real property. SB 50 will also repeal Florida’s archaic bracket system in favor of the rounding approach used by nearly every other state for the calculations of taxes.

While every tenant will save on their overall business costs, considerable cost savings will be realized by larger occupiers in Florida, particularly in higher-rent markets like South Florida. Tenants with triple-net leases making payments on behalf of a property owner (i.e. taxes and insurance) will benefit even more as those payments will be classified as rent and will be subject to the 2.0% rate. Essentially, the bill goes a long way in establish a fairer tax climate in an already highly business-friendly state. It is estimated that the 3.5% reduction in the business rent tax will save commercial tenants in Florida approximately $1.2 billion annually.