If you asked me what makes Florida unique, I would probably say our reputation for strange and unusual news stories. But today, I’d like to focus on something completely different affecting business in our State. Florida is also unique as the only state charging sales tax on commercial leases. It should also be noted that we are one of only eight states with no state income tax. But the sales tax does put Florida at a competitive disadvantage when it comes to attracting corporate relocations.
That is about to change. Two years ago, on April 19, 2021 our governor signed Senate Bill 50. The bill expanded sales tax on online purchases, but also plotted a path to reduce the state sales tax on rent from the current 5.5 percent to 2 percent. (plus a 1% surtax in Miami-Dade, Broward and Palm Beach counties) That is projected to save Florida businesses approximately $1 billion per year.
Just as I was about to post this article, it changed again. On May 5, 2023 the State House and Senate unanimously passed House Bill 7063, which upon approval from the Governor, will reduce the tax from 5.5% to 4.5% effective in December 2023.
But the $1 billion question remains: When will the full reduction to 2% take effect? As a commercial tenant representation specialist, I am very interested in anything that will save my clients money. But after an extensive search, I couldn’t find an answer. So, as a former market research guru, I rolled out my yoga mat and did the investigation myself.
The reduction in SB50 is tied to the Florida Unemployment Compensation Trust Fund. As of March 2020, the state had $4.07 billion in the Fund. But unemployment benefits due to COVID drained the fund to a low of $623 million in April 2021. Senate Bill 50 stipulates that the sales tax reduction will commence 2 months after the fund balance exceeds the pre-COVID level of $4,071,519,600 .
Are we there yet? Not quite, but according to my research, in addition to the 1 percent reduction this December, Florida commercial tenants will see an additional 2.5% reduction on their rent bills around August of 2024.
Upon passage of Senate Bill 50, the State began to apply funds from the online sales tax to the Fund. I spoke to the economist in charge of fund projections at the Florida Legislature, Office of Economic and Demographic Research. She referred me to the results of the State’s Consensus Estimating Conferences which are posted online. The most recent forecast was published on March 2, 2023. It showed that the fund balance had increased to $2.56 million and that the State will be allocating $90 million to the fund every month. According to the March forecast, the balance will cross the $4.07 billion mark in May 2024, which means that the reduction would take effect in August. Last week, I called my contact in Tallahassee and confirmed that my interpretation was correct.
But is that projection accurate? At the moment, there are more jobs than applicants in Florida indicating that the state should not be paying out a lot of unemployment claims. While no one could have predicted COVID and there is the potential for an economic downturn or even a natural disaster, it would take some unforeseen event to significantly alter the state’s projections. I also confirmed that the projected December tax reduction will not affect the projections from March 2nd.
When I first started researching this topic back in January, the latest forecast was from August 2022. The August forecast projected a balance in March 2023 of $2.52 billion and showed it crossing the $4.07 billion threshold in May 2024 with a balance of $4.2 billion. The state economist told me to watch for the upcoming March 2023 forecast (above) which I recently downloaded and reviewed.
As of March 2023, the balance was at $2.56 Billion, 1.02% higher than the August 2022 forecast. More importantly, it showed that my friends at the State were highly accurate with their projections. I am therefore reasonably confident in the March forecast, which projects that the 2% state sales tax on commercial rents will take effect in August 2024.
So hats off to the Office of Economic and Demographic Research, and a thank you to our governor, whether you love him or hate him. All signs point toward a sales tax reduction in 2024, providing corporations additional incentive to bring high-paying jobs to Florida. Now if we can only get our residents to stop throwing alligators into drive-thru windows or breaking into their neighbor’s house to pet their cat.