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Sunday, 25 of February of 2018

Sales Tax on Residential Rentals

People on the Florida Treasure Coast have received letters from the Florida Department of Revenue asking if they paid Sales Tax on their Residential Rental Property and suggesting that they take advantage of the amnesty the Department of Revenue is offering.

The first questions asked when someone gets this letter, is “how did they get my name how did Florida Department of Revenue know?” The answer to this question is three fold. First, they went to the Tax Assessors of Indian River, St. Lucie, Martin and Okeechobee counties and asked for a list of the owners of properties without a homestead exemption. Then they went to the Internal Revenue Service and got a list of people who filed rental income on Schedule E. Finally, the DOR then compared those taxpayers who have non-homestead property and reported rental income to the IRS with those people who did not file a sales tax return. If you made all three lists then you were a “winner” and got a letter. 

The next question is “do I have a problem?” 

Generally, commercial rentals are subject to sales tax so if you rent commercial property or rent to a business then the law requires you to collect and pay the sales tax. If you did not charge the sales tax, you are still responsible to pay it.

 When you rent residential property things can get complicated. Here again there is a general rule, that helps simplify. If you have a long-term rental then it is exempt from sales tax and you are exempt from collecting and paying the tax. If all you rentals are long-term residential properties then you don’t even have to register with the DOR or file a return. 

However, when is a residential rental long term? 

If you rent to a tenet for six months or less it is short term or a transient rental, six months and one day it is long term. The DOR will look at your lease to make this determination. But what if you don’t have a lease, and rent on a Month to Month basis? In this case, tax is due on the first six months of the rental, then for the rest of the time that tenet lives in that house it is tax-free. It does not matter if you and the tenet expect this to continue for more than six months. If you don’t have a lease, it is subject to sales tax!

What if you have a lease for six months and one day and your tenet skips out after three months? Then you are OK, you had a long-term lease; no sales tax is due. 

That is not all. If you have a short-term rental and owe sales tax to the State of Florida then you also owe Tourist Development Tax to the county. If you think sales tax is complicated then just wait for the next post. The Tourist Development Tax is down right convoluted.

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