It’s a mundane task countless tenants perform every month. Pay the rent.

But if you rent commercial space in Florida you must dip into your pocket twice: Pay your landlord for the rent and then also for a special rent tax.

The Sunshine State has rained on commercial tenants like this since 1969 when the Legislature began levying a tax on rental of real property. Florida is the only state that imposes such a tax on business rents, though some cities such as New York do too. The tax historically equaled the state sales tax, which now stands at 6%, plus any local sales tax (typically another 1% depending on the county), meaning business renters often paid 7%.

There is good news: You’re paying less.

Starting in 2018, the Legislature began ratcheting down the tax, dropping it five times from 6% to 2% in June 2024 (Figure 1). There has been bipartisan support for the reduction, which opponents have long argued imposes a hardship on Florida businesses and reduces the state’s competitiveness. Some states competing for relocations have cited the tax as providing them an edge over Florida. “When we’re trying to lure new businesses, Texas beats us over the head with it,” said Todd Jones, who runs RealAdvice, which provides consulting and advisory services to commercial real estate property owners.

Source: Florida Department of Revenue

Kurt Wenner, senior vice president of research for Florida Tax Watch, said, “The money that businesses keep can have a positive impact on the whole economy depending on where and how that money is spent. It will offset increased rents businesses are paying.” Florida Tax Watch, a nonprofit that advocates for sound tax policies, has been calling for the elimination of the tax for many years.

Interestingly, state coffers continue growing

It may seem illogical but despite the lower rate the tax is generating more than ever. In the fiscal year 2024, the tax brought in $2.64 billion, up from $1.66 billion in 2015 (Figure 2). Experts say the state’s strong economy and increased in-migration of people and businesses in recent years has kept the revenues growing. This explains lawmakers’ softening their resistance to lowering the tax. The tax payments go to the Florida Department of Revenue, and the money lands in the state’s General Revenue fund.

Source: Florida Department of Revenue

It’s hard to say how much the lower tax will help businesses given that commercial rents — just like apartment rents — have surged in recent years. Certainly, the tax can add up to a lot of money for big renters. The Legislature’s Office of Economic and Demographic Research concluded it’s “probable that the economic burden of the commercial rental tax is pushed in its entirety to the tenants.” Thus, consumers, such as Publix shoppers, would benefit because a lower tax may allow the chain to lower prices. “Absolutely, it’s passed through to the consumers,” Jones said.

In addition to the money saved, the tax is a hassle that requires additional administrative work. It reminds Jones of “sludge,” a concept recently discussed on Freakonomics, a podcast. This isn’t physical sludge that gums up machinery, but administrative and bureaucratic sludge that can make it hard to do simple things. Like picking the best health care coverage or signing up for some government service. Jones said even if you consider the tax doesn’t amount to much it’s sludge that gums up business. He noted he set up a limited liability corporation that owns a small office building he rents in Tampa. This means his business pays tax based on the amount of rent he pays the LLC. “I’m moving money from one pocket to another in the same pair of pants,” and paying the tax, he said.

There may be more good news coming for business renters. Governor Ron DeSantis’ proposed $115.6 billion state budget for fiscal 2025-2026 would eliminate the tax altogether. “That will be a bright day for the Sunshine State’s economy,” Jones said.

Who pays

The Florida Department Revenue says “any person who rents, leases or grants a license to others to use commercial real property must register” to pay the tax. (Its website: floridarevenue.com/taxes/registration.)

Details: The tax is paid by renters of commercial real property, including land; buildings; offices; retail spaces; convention and meeting rooms; airport tie-downs and parking and docking stations. It may also include licenses granting the use of property for the placement of vending, amusement and newspaper machines.

Exemptions: Dwelling units; real property assessed as agricultural; rentals to nonprofit organizations; and rentals to federal, state, county and city government agencies.