The Florida legislature recently wrapped up its 2019 session. Of particular note, the following tax law changes were enacted.
Documentary Stamp Tax – Deeds between Spouses
Florida imposes a surtax – referred to as the “documentary stamp tax” – on real estate deeds based upon the consideration paid for the transfer. Mortgage indebtedness on the property is always treated as consideration paid, even if the debt is not assumed by the acquiror. Exempt from this surtax were deeds of homestead property between spouses. However, this exemption only applied to deeds given during in the first year of marriage.
Effective July 1, 2019, the first year of marriage requirement will be eliminated. Now all such deeds are exempt from the surtax. This change in law will facilitate more flexibility in family wealth planning. However, the exemption is not a perfect solution as it applies only to homestead property (principal residence). In addition, the exemption does not apply to the surtax incurred where a lender requires the recipient spouse to assume the underlying mortgage debt.
Sales and Use Tax – Commercial Leases
Unlike most states, Florida imposes a sales tax on commercial leases. The tax applies to the “total rent” charged for renting, leasing, or granting a license to use commercial real property in the state. The scope of what falls within the definition of “total rent” has perplexed Florida businesses for some time. One other notable aspect of this tax –often misunderstood by Florida businesses – is that there is no intercompany exemption. This means that sales tax on commercial leases is imposed on a lease between two commonly-controlled business entities. It is no surprise that the tax on commercial rents is not popular with industry groups.
Effective January 1, 2020, the sales tax rate on commercial rent drops from its current rate of 5.7% to 5.5%. This change in law is emblematic of the Florida Legislature’s continuing efforts to reduce, and possibly eliminate, the tax on commercial leases.
Corporate Income Tax – Decoupling from GILTI
The 2017 federal tax reform legislation imposed a new federal tax on Global Intangible Low-Taxed Income (“GILTI”). Prior to the enactment of the new federal law, corporate groups would “park” intangible property – i.e., trademarks and patents – in foreign subsidiaries. These foreign subsidiaries would be formed in low – or no – tax jurisdictions. The goal of this new law was to impose U.S. corporate income tax on the income earned by these foreign subsidiaries. Corporate taxpayers, however, are permitted to claim a 50% deduction against GILTI income and are allowed a credit for foreign taxes paid.
The Florida corporate income tax laws, as with most states, “piggybacks” off federal law. In other words, unless the Florida Legislature speaks to the contrary, the provisions of federal corporate income tax law apply for purposes of imposing the state’s corporate income tax. The concern for Florida taxpayers was whether the Florida corporate income tax base would be expanded through conformity with the federal GILTI laws. After much study and debate, Florida enacted a new law making clear that it would not “piggyback” off the federal GILTI provisions. This law is most certainly welcomed by corporations doing business in Florida.