Though much of the attention related to the signing of a $1.3 billion package of tax breaks by Gov. Ron DeSantis has been directed toward the impacts it will have on residents and shoppers, the legislation also includes a tax break that a number of local commercial real estate professionals are excited about.
The tax package, HB 7063, includes a 1% reduction in the state’s sales tax on commercial leases, often referred to as the business rent tax, from 5.5% to 4.5%, effective Dec. 1.
The 1% tax break precedes another looming cut to the tax, all the way down to 2%, that was passed in 2021 and will take effect once the state’s unemployment trust fund is replenished.
Real estate sources told Orlando Business Journal the short-term and long-term cuts are significant, both for the savings they will provide big and small businesses but also because they are gradually eating away at a tax that makes Florida an outlier.
“We have had a tax that other states do not have — so when people come to Florida, it’s always, ‘oh, by the way, everything’s 5.5% more,’” said Bobby Palta, a senior vice president in the Orlando office of Atlanta-based The Shopping Center Group. “If we don’t need it … then that’s great that they’re passing the savings back to the job creators.”
Dominic Calabro, the president and CEO of Tallahassee-based Florida TaxWatch, echoed Palta’s sentiment and went further, saying it has long been a priority of his group to encourage legislators to eliminate the tax — which he described as “anti-competitive” — altogether.
“We believe that this full percentage point reduction is actually a sizable percentage decrease,” Calabro told OBJ. “More importantly, it shows a firm commitment by the Legislature and governor to do what TaxWatch has called upon for many years now. … We hope to get rid of this tax altogether within a year or two years.”
This matters, he said, because the smaller the tax is, the easier it becomes to eliminate altogether.
As for the short-term effect of the 1% cut here in Orlando, Natalie Chance, a senior tax manager in the Orlando office for Princeton-based accounting firm Withum, said the savings could be minimal for some businesses — but more significant for firms that are renting either a lot of space or expensive space.
“It depends on how big your rental expenses are,” she said, giving the example that a business paying $10,000 in rent each month would save $100 per month and $1,200 per year.
Jared Bonshire, an executive managing director in Chicago-based Cushman & Wakefield’s Orlando office who focuses on industrial properties, suggested it is too early to say how much the tax break will impact industrial leasing given pressures users are encountering now related to insurance and property tax increases. “Generally, every little bit of savings does help.”
Jeff Sweeney, a managing director for Cushman & Wakefield who has a background in Orlando office real estate, added that the break could be especially noteworthy as it pertains to the market as a relocation option.