SRQ Daily Columnist Kevin Cooper is the vice president for Public Policy and Sarasota Tomorrow Initiatives for The Greater Sarasota Chamber of Commerce

The power to tax and spend is arguably one of the most fundamental elements of a functioning government. Per usual, as the 2015 session approaches, there are a significant number of revenue and expenditure based issues that the Florida Legislature will be expected to address. 

It is the opinion of the Greater Sarasota Chamber of Commerce that, during this session, the Legislature should prioritize the elimination, gradual or otherwise, of the sales and use tax on commercial real property rentals. 

This opinion is not necessarily derived from a desire to positively affect a business’ bottom line, a disagreement on how the tax revenues are spent, or the rate at which the tax is levied. But, rather, the opinion stems from a consideration as to whether or not the tax is warranted. For example, is it justifiable to require commercial tenants to pay taxes on taxes? 

Before considering its validity, it’s important to understand the tax, which is commonly known as the commercial lease tax. According to the Florida Department of Revenue, the tax is “due at the rate of six percent (6 percent) on the total rent paid for the right to use or occupy commercial real property.” Basically, it’s a tax on the rent that businesses pay for their offices, retail space, warehouses, etc…

One interesting aspect of the tax is that Florida is the only state in the U.S. that imposes a statewide sales tax on commercial leases. Being the only state that levies a specific tax doesn’t necessarily make that tax unacceptable, but it certainly makes it peculiar. To the state of Florida, it currently equates to a roughly $1.4 billion peculiarity. Where the peculiarity of this tax begins to render it unjustifiable is in how it affects the state’s ability to compete with the rest of the country. This tax simultaneously makes Florida less attractive for businesses who rent facilities and makes Florida businesses less able to reinvest in their businesses, hire more workers and pay better wages.

As mentioned, though, just because a tax is unique doesn’t make it invalid. Instead, as former United States Supreme Court Justice Benjamin Cardozo opined, “(t)he validity of a tax depends on its nature.” 

The nature of the commercial lease tax is that, according to the DOR, it can be levied on “ad valorem taxes…common area maintenance, customer (free) parking, or janitorial service.” The commercial lease tax creates a very real scenario where a tenant is required to pay a tax on a tax. For example, ad valorem taxes, more commonly known as property taxes, are oftentimes paid by a tenant. In those instances, tenants are literally paying sales tax on property taxes. 

The nature is also that, according to the DOR, “the lease of real property by a parent corporation to one of its subsidiaries, or by a shareholder to a corporation, is subject to sales tax.” The commercial lease tax creates a very real scenario where a tenant is required to pay tax on space that is already owned by a related company. This scenario is akin to a child having to pay sales tax on the rent that he or she pays to a parent in order to occupy a room in a house that the family already owns. 

Finally, the nature of this tax is that it presents a huge opportunity cost burden on the Florida economy. According to a 2013 report prepared by Fishkind and Associates, “(t)he removal of the commercial lease sales tax revenue represents an estimated five-fold increase in economic benefits to the State of Florida.”

The power to tax and spend is arguably one of the most fundamental elements of a functioning government. Critical to that function is a justification for the taxes levied and the revenues spent. When the nature of a tax renders its justification difficult, it is likely time to adjust or eliminate it.

SRQ Daily Columnist Kevin Cooper is the vice president for Public Policy and Sarasota Tomorrow Initiatives for The Greater Sarasota Chamber of Commerce