For all the effort in the state legislature to unburden small business owners from unnecessary regulation, Florida remains the only state in the union that forces business owners to pay sales tax on commercial rent. And in certain situations, many businesses end up paying sales tax on their tax payments.
In all, Tallahassee business owners pay more than $15 million every year just in commercial rent sales tax. In Jacksonville, business owners fork over nearly $50 million in commercial rent sales tax. In only the downtown area of Tampa, commercial rents cost businesses $60 million in 2015, and that doesn’t count the outlying suburban areas where many small business owners are located. In greater Miami? Hundreds of millions of dollars…again not for rent, but sales tax on rent.
And that’s just the beginning of the problem that a coalition of business groups, led by Florida Realtors, is pushing to resolve this session.
“The tax continues to be a large burden on small businesses, and when their growth and success is hindered, every Floridian suffers,” says Carrie O’Rourke, vice president of public policy for Florida Realtors. “That is why we are leading the Business Rent Tax Coalition in the fight to help our businesses and our communities prosper.”
The dollars that businesses pay could, in many cases, cover the wages and other costs associated with hiring more employees. But in some cases, business owners are getting taxed on the taxes they are already paying. It’s a bizarre loophole that siphons even more money out of the pockets of businesses and their employees.
Guy Moore, the owner of Tallahassee’s own Garnet and Gold retail chain, is forced to not only pay thousands of dollars each month on rent, but because of the way property taxes are billed as “additional rents,” Moore also pays pay hundreds of dollars in additional “sales tax” on money he paid for property tax.
“Because the Florida Department of Revenue recognizes escrow payments as additional rent,” Moore says, “I am literally paying sales tax on my tax payments.”
Moore is not alone. Other business owners are also impacted by the same double taxation issue.
“At the end of the day, the business rent tax takes away from our bottom line,” says John Tuminaro, owner of FixIT Tek in Belleview, Florida. “In these times it’s tough to make a living to begin with. The rent tax in general takes away a lot from our margin, and even worse, we have to pay sales tax on our property tax.”
Other business owners are taking unusual steps to avoid paying thousands of dollars in sales tax each year. Robert Molsick, owner of FloorMasters in Wildwood, Florida, estimates that he saved between $55,000 and $77,000 in sales tax over the 11 years he’s been in business by electing to have his business own the property rather than rent it from a separate legal entity. But this strategy is not without risk.
“I rolled the dice and elected not to [rent my building] when I started my company 11 years ago because I would have had to pay an extra five-to-seven thousand dollars a year in sales tax on the ‘fair market rental value’ of the property,” Molsick says. “It was simply an additional tax we would have had to pay but could legally avoid by keeping the ownership of the real property in the company itself. But this goes against legal advice to put your business real estate holdings into a separate legal entity from the business so it would not be subject to loss in the event of a business bankruptcy or lawsuit.”
The National Federation of Independent Business (NFIB) is a member of the Florida Realtors’ coalition, which launched a website to raise awareness about the sheer magnitude of the tax burden placed on business owners. The site, BusinessRentTax.com, includes a tax savings calculator, along with a commercial rent sales tax map that breaks down the commercial rent tax paid in every single zip code. The numbers are staggering.