There is probably no such thing as a lovable tax.
Many are easy to detest, and sometimes they are unpopular enough to spark a rebellion. It happened in Boston once, when the government tried to collect a tax on tea.
But taxes are necessary if we are to have any government at all, and some taxes are more benign - which is to say, fairer and less burdensome - than others. When such a tax is imposed by a government that delivers good value for the money it extracts, we ought not to complain too much. This is why I did not accept an invitation, extended by my office landlord in Florida, to demand a reduction in the sales taxes I pay on my firm’s lease in Fort Lauderdale.
The request was prompted by legislation currently under consideration by the Florida Senate. Senate Bill 140, sponsored by Sen. Dorothy Hukill, R-Port Orange, proposes lowering the tax by 1 percent. It has passed two committees and is currently under consideration by a third. Several other bills have been introduced recently to reduce or eliminate the commercial rent tax, but Hukill’s legislation has so far shown the most momentum. It is, perhaps unsurprisingly, drawing support from landlords, building managers and other members of the commercial real estate industry.
The tax on commercial rent is 6 percent in Broward County, which includes Fort Lauderdale. It varies in other parts of the state, where localities have added their own taxes; it is 7 percent in Miami-Dade County, for example. Those who object to the tax point out that Florida is the only state in the nation that levies a standard, statewide tax on commercial real estate leases.
This is true. It is also true that we have no income tax in Florida. We have no gift or estate tax. Our property taxes are reasonable compared to a lot of other places, especially other big states like New York. These elements make Florida an excellent place to start or grow a business. The commercial rent tax has little bearing as far as I can see.
This is especially true because the tax is part of the rent expense paid by the business. This means that it is automatically deducted when I figure my federal income tax as the business owner of a limited liability company. It is also not subject to alternative minimum tax, nor to other limitations on deductions paid by high-income taxpayers.
In addition, any business occupying the same space at the same rent pays the same tax, regardless of whether that business is a corporation or a sole proprietorship. It doesn’t matter whether the business is organized overseas, in another state or right here in Florida. If you lease physical space in the state for your business, the tax is the same. While no one is excited about paying a tax, it seems to me that on balance Florida still has a lot to offer a business owner, this tax notwithstanding.
Building owners see things differently. They claim that eliminating the tax altogether would put $1.5 billion back in the hands of businesses that could expand operations in Florida. (Right now only a reduction, not elimination, is under consideration in Tallahassee.) That’s clearly wrong. To a business, the tax is just part of the rent we pay. Eliminating the tax would mainly create space for landlords to raise that rent, and I expect that much, probably most, of the benefit would accrue to building owners. That’s not an inherently terrible outcome; I don’t begrudge them a profit on their property. But I doubt repealing this tax would have much stimulative effect on Florida’s economy as a whole.
A more complex but valid argument could be made that commercial property is being taxed twice - once through the property tax that building owners pay, which is factored into commercial rents, and then again via the sales tax that is imposed directly on lease payments. In fact, many commercial leases include escalator clauses that directly pass property tax increases through to tenants with long-term leases. So in these terms, the activity of holding and using commercial space in Florida is undeniably being taxed twice. But property taxes go entirely to localities; in Broward County, the sales tax goes entirely to the state. Somebody has to pay for state services.
Amber Hughes, a lobbyist for the Florida League of Cities, told the Florida News Service that decreased revenue even under the proposed 1 percent reduction worries local governments. State budgeters are probably not thrilled by the prospect either. If it passes, the bill would reduce state revenue by approximately $97.8 million for the 2015-16 fiscal year, and by an estimated $234.9 million for subsequent years when the reduction is in effect for the full year. That’s a big hit in exchange for getting rid of a tax that isn’t especially unfair or burdensome.
The commercial rent tax obviously does not burden poor people, who don’t rent commercial space. It has only a small impact on small businesses that keep their overhead low by using small, cheap spaces in secondary locations. It falls most heavily on the large, established businesses that use a lot of space and can typically afford it - especially since, in the final analysis, the tax is just another cost of leasing space, comparable to utilities, security and janitorial services.
I don’t mind paying a tax like this, and I don’t know that too many other businesses mind either, other than commercial landlords. I see where they are coming from. I just don’t want to go there.
Posted by Larry M. Elkin, CPA, CFP®
photo by Phillip Pessar
There is probably no such thing as a lovable tax.
Many are easy to detest, and sometimes they are unpopular enough to spark a rebellion. It happened in Boston once, when the government tried to collect a tax on tea.
But taxes are necessary if we are to have any government at all, and some taxes are more benign - which is to say, fairer and less burdensome - than others. When such a tax is imposed by a government that delivers good value for the money it extracts, we ought not to complain too much. This is why I did not accept an invitation, extended by my office landlord in Florida, to demand a reduction in the sales taxes I pay on my firm’s lease in Fort Lauderdale.
The request was prompted by legislation currently under consideration by the Florida Senate. Senate Bill 140, sponsored by Sen. Dorothy Hukill, R-Port Orange, proposes lowering the tax by 1 percent. It has passed two committees and is currently under consideration by a third. Several other bills have been introduced recently to reduce or eliminate the commercial rent tax, but Hukill’s legislation has so far shown the most momentum. It is, perhaps unsurprisingly, drawing support from landlords, building managers and other members of the commercial real estate industry.
The tax on commercial rent is 6 percent in Broward County, which includes Fort Lauderdale. It varies in other parts of the state, where localities have added their own taxes; it is 7 percent in Miami-Dade County, for example. Those who object to the tax point out that Florida is the only state in the nation that levies a standard, statewide tax on commercial real estate leases.
This is true. It is also true that we have no income tax in Florida. We have no gift or estate tax. Our property taxes are reasonable compared to a lot of other places, especially other big states like New York. These elements make Florida an excellent place to start or grow a business. The commercial rent tax has little bearing as far as I can see.
This is especially true because the tax is part of the rent expense paid by the business. This means that it is automatically deducted when I figure my federal income tax as the business owner of a limited liability company. It is also not subject to alternative minimum tax, nor to other limitations on deductions paid by high-income taxpayers.
In addition, any business occupying the same space at the same rent pays the same tax, regardless of whether that business is a corporation or a sole proprietorship. It doesn’t matter whether the business is organized overseas, in another state or right here in Florida. If you lease physical space in the state for your business, the tax is the same. While no one is excited about paying a tax, it seems to me that on balance Florida still has a lot to offer a business owner, this tax notwithstanding.
Building owners see things differently. They claim that eliminating the tax altogether would put $1.5 billion back in the hands of businesses that could expand operations in Florida. (Right now only a reduction, not elimination, is under consideration in Tallahassee.) That’s clearly wrong. To a business, the tax is just part of the rent we pay. Eliminating the tax would mainly create space for landlords to raise that rent, and I expect that much, probably most, of the benefit would accrue to building owners. That’s not an inherently terrible outcome; I don’t begrudge them a profit on their property. But I doubt repealing this tax would have much stimulative effect on Florida’s economy as a whole.
A more complex but valid argument could be made that commercial property is being taxed twice - once through the property tax that building owners pay, which is factored into commercial rents, and then again via the sales tax that is imposed directly on lease payments. In fact, many commercial leases include escalator clauses that directly pass property tax increases through to tenants with long-term leases. So in these terms, the activity of holding and using commercial space in Florida is undeniably being taxed twice. But property taxes go entirely to localities; in Broward County, the sales tax goes entirely to the state. Somebody has to pay for state services.
Amber Hughes, a lobbyist for the Florida League of Cities, told the Florida News Service that decreased revenue even under the proposed 1 percent reduction worries local governments. State budgeters are probably not thrilled by the prospect either. If it passes, the bill would reduce state revenue by approximately $97.8 million for the 2015-16 fiscal year, and by an estimated $234.9 million for subsequent years when the reduction is in effect for the full year. That’s a big hit in exchange for getting rid of a tax that isn’t especially unfair or burdensome.
The commercial rent tax obviously does not burden poor people, who don’t rent commercial space. It has only a small impact on small businesses that keep their overhead low by using small, cheap spaces in secondary locations. It falls most heavily on the large, established businesses that use a lot of space and can typically afford it - especially since, in the final analysis, the tax is just another cost of leasing space, comparable to utilities, security and janitorial services.
I don’t mind paying a tax like this, and I don’t know that too many other businesses mind either, other than commercial landlords. I see where they are coming from. I just don’t want to go there.
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