Our friend Rick Scott is at it again, working the reelection trail very hard these days. He has settled on a tried and true method of getting there – make all the people who vote for you happy. This is not as easy as it sounds, you have to think of all the different types of businesses, groups, etc. and figure out exactly what they want and how to give it to them. Well they all want money, sure, but the way you get that is by cutting taxes. This is under an umbrella of promised tax cuts that would be at least $500 million. So far Scott has come up with 5 proposed cuts that could total $618 million. What they are in reality are recommendations to the Legislature who actually writes the annual budget for the state. This article focuses on an important part of commercial real estate in Florida, the sales tax, which he is proposing to lower the tax rate. Scott is aiming at the real estate brokerage community with this potential incentive, so I feel compelled to weigh in on it. But first a little background on what this is. When I started the in the commercial real estate industry in New York in 1995 there were only gross leases. That means that everything (rent, operating expenses, taxes, etc.) was rolled up into one figure and that it. There were no other charges for anything else. In Florida, whether you deal with a gross lease or a net lease (one that separates the base rent and operating expense components) you must pay sales tax on top of it. Like you would when you buy a loaf of bread. It sounds silly but this is quite true and despite our tax friendly status, great weather, and excellent quality of life, companies do not like the fact that they must pay sales tax on their commercial rent. But that is the cost of doing business here and when you look at the costs overall it still makes sense to locate here, and as we know, relocate here. I have seen 2 articles on this and have included them both because there are discrepancies and something else that doesn’t make sense. In one, it says it will lower the state sales tax from 6% to 5.5% (Palm Beach Post, not always the most reliable I know), and the other says 5%. What doesn’t make sense is that while the state mandates a sales tax and what exactly is taxable, the rate itself is set by county. In South Florida, the current tax rates are 6% for Palm Beach and Broward counties and 7% for Dade. So you see why this is confusing. Anyway, the idea is that this will attract even more business here, make more deals happen in general, and that of course should make all commercial real estate brokers happy. If it happens this would be $100 million dollars in reduced taxes, which really pales in comparison to the $401 million that would be reduced if the motorist hikes fee is eliminated. Still, Scott got my attention with this one, now we will see what the Legislature says. What do you think about all these proposed tax cuts?
Governor proposes $104 million cut in sales tax for businesses paying rent
Governor: Reduce commercial lease tax by $100M
Orin Rosenfeld
President
Rosenfeld Realty Advisors
9858 Glades Rd. Suite 209
Boca Raton, FL 33434
Phone: 561-756-1665
Fax: 561-470-0707
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