Depending on your fact pattern, there may even be ways to argue some of the amounts paid should not be considered rent. If you or your client are going through an audit and are facing these issues, then there are ways to negotiate down the assessment if you have local, experienced counsel. Consequently, both entities should keep accurate records dating back several years or more. Keep in mind, the state can assess both the landlord or the tenant in this scenario. In not, there is a presumption of taxable rent occurring. If not, then the taxing authority can once again see if the owner of the property is registered as a landlord. The Department can also compare records of businesses registered with the Department of Revenue to see if the registered company owns the address of record. If there are two entities with the same address in the department of state’s records and the owner of the property is not registered as a landlord, then Department of Revenue presume there should be rent. The Department of Revenue views commercial rent as an easy to target, as they can search both the county property appraiser’s records and the department of state’s records to identify offending companies.
#SALES TAX FORT MYERS FL CALCULATOR FULL#
The Department could assess sales tax plus penalties and interest for the full 20+ years! Imagine a scenario in which the landlord entity, unregistered with the state, has had the mortgage and taxes on a property paid for by the tenant entity for 20+ years. This can create a large tax exposure for the landlord entity even if the tenant entity is filing sales tax returns. However, if a taxpayer is not registered with the state, the Department can assess all the way back to the beginning of the business. It is important for taxpayers to understand that the Department can assess up to three years of sales tax if the party is registered with the state. As such, even when there is no rental agreement between two parties, the Department of Revenue will assess tax when the property expenses are paid directly or indirectly by a business other than the owner of the property. Here, whether the tenant entity pays this cost directly or instead pays it to the real estate company, the Department will take the position that tax is due for the year in the amount of $595.20. The situation happens very often and the Department of Revenue has been very successful in not only taxing these situations, but also finding taxpayers who are in this situation.įor this example, let’s assume the $800 monthly mortgage obligation of Company A (landlord entity) is paid by Company B (tenant entity) and the property taxes are included in a monthly payment. What catches a fair amount of taxpayers off guard in related party situations is when the “tenant entity” pays the mortgage and property taxes on behalf of the “landlord entity.” The Department of Revenue successfully claims that the tenant’s payment of the debts of the landlord are “constructive rent” subject to sales tax. You would likely win if you crossed your t’s and dotted all your i’s, but fighting would be time consuming and expensive. In other words, making the rent a $1 a year might entice the FL Department of Revenue to challenge the rental agreement. Keep in mind the southern phrase, pigs get fat, but hogs get slaughtered. As such, even in a related party rental agreement, it may make sense to have a lease between the parties for a nominal amount. Sales tax due will be calculated as shown below.Īlthough Company A and Company B are both owned by John Smith, the companies are remitting over $2,976 in sales tax a year to the state of Florida for rent for moneys that are effectively moving from one pocket to the other. The rent is based on the fair market value of $4,000 a month. Company A rents from Company B, the property owner of the property being rented.
Therefore, with a little tax planning, business owners can see substantial sales tax savings in a rental agreement.įor example, Company A and Company B are owed by John Smith. In these situations, it is important to remember that there is no requirement for fair market value rent under Florida sales tax law. Many rental agreements are structured between related parties in which the land and building are in a separate entity for asset protection purposes.
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Calculating the sales tax on commercial rent is more difficult than one would imagine. Identifying taxable rent is only the first step, however. Specifically, Florida levies a sales tax at the rate of 5.7% for commercial rent and allows counties to levy an additional surtax that ranges from 0% to 2.5%. Florida is the only state in the United States that directly imposes sales tax on commercial rental payments.
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