Thursday, June 30, 2005

FAQ: Do I have to pay sales tax on property taxes?

In states where lease and rental payments are taxable, then the question comes up as to whether or not there's sales and use taxes on the property taxes paid by the lessee.

The answer, usually, is yes, you pay taxes.

It's not that you're paying taxes on taxes. It's because your agreement with the lessor is that you'll pay rent, plus the property taxes. Essentially the property taxes are "rent". Since the rental payment is taxable, the property taxes are taxable too. But they’re not taxable as taxes, they’re taxable as part of the rental payment. In other words, if the lessor paid the property taxes himself, there would be no sales or use tax .

It's worth taking a look at the rental agreement to make sure that the property taxes ARE part of the rent, just to make sure.

In particular, this is the rule for commercial real estate rental in Florida. The real estate taxes that the lessee pays as part of their lease agreement is considered taxable. The rest of you who aren't in Florida are supposed to be amazed that commercial real estate rental is taxable there.

Sales Tax Guy

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