Herein is an overview of everything you need to know about the tax requirements in the state of Florida.
Florida is one of the nine states in the U.S. that does not levy state income taxes. Lack of an individual income tax is among the reasons why Florida has a low tax burden. The constitution of Florida prohibits an income tax. However, if you reside in Florida, you still have to pay federal income taxes collected by the Internal Revenue Service (IRS).
Corporate Income Tax
Florida imposes corporate income or franchise tax on all corporations for existing, conducting business, and deriving income within the state. The corporate income tax is calculated based on federal taxable income modified by additions, subtractions, and adjustments related to the state.
The Florida Department of Revenue recently reduced the corporate income tax rate to 3.535% from the previous 4.458% for tax years beginning January 01, 2021, and January 01, 2022. Following this period, the tax rate will return to 5.5%.
The following are the entities that are subject to the corporate income tax in Florida:
- All corporations, including tax-exempt organizations conducting business and earning income in Florida.
- All banks and savings associations.
- All artificial entities or associations.
- Out-of-state corporations that are members of a joint venture or partnership earning income in Florida.
- Limited liability companies (LLC) are classified as corporations or partnerships for federal and Florida income tax purposes.
There are several tax incentives against the Florida corporate income tax. They include incentives for making certain investments in the state, incentives for paying salaries in Florida, and other taxes.
Local governments are tasked with administering property tax in Florida. It is through these taxes that they receive the bulk of their funding. The state of Florida makes up for the lack of income taxes largely through property taxes.
Property taxes in Florida are levied annually. You have to pay property tax if you own real property either as an individual or as a business in Florida. If you are a property owner in Florida, you must pay property taxes in full and at one time. If you have filed for homestead tax deferrals or the installment program, you will be exempt from this requirement.
If you pay your property taxes early, you are subject to substantial discount extensions. Note that you are already fulfilling your Florida real property tax requirements if you are paying for a mortgage. A standard mortgage includes the principal, interest, property taxes, and homeowners' insurance. Also, in Florida, five months can elapse before you are penalized for not paying your property taxes.
A local tax assessor determines property value. Every year as of January 01, county appraisers determine the value of your property. Your property's taxable value may be reduced after the county appraisers review and apply classifications, assessment limitations, and exemptions. You can find your county property appraiser on the Florida Department of Revenue website.
The average real property tax rate in Florida is 0.98%. The U.S. average real property tax rate is 1.08%. The Florida Department of Revenue website provides access to the payment options for each county in the state. Florida law features several notable property tax exemptions, including:
- Senior citizen exemptions
- Blind person exemptions
- Homestead exemptions
- Total and permanent disability exemptions
- Veterans exemptions
- Widow and widower exemptions
Sales and Use Tax
The state of Florida levies a sales tax for every retail sale, admission charge, rental, and storage, as well as other services at the time of purchase. There are some exceptions to the sales tax, such as medicine and groceries. The Florida sales tax is 6%.
The sales tax is included in the price of taxable goods, and your customers pay this tax at the time of purchase. Local municipalities can impose a discretionary sales surtax (county tax) in addition to the 6% sales tax. The sales surtax can range from 0.25% to 2.5%.
The Use tax refers to a tax levied on property/items that you purchase out-of-state and bring into Florida within six months of the purchase. The state of Florida assesses the use tax at 6 % of the purchase price. You are required to report these out-of-state sales and personally pay the use tax on the items. Note that some properties are exempt from the use tax.
Before starting a business in Florida, you must inquire if your products or services are subject to sales and use tax. If so, you must register to pay use tax or collect sales tax. Also, counties in Florida can impose transient rental taxes on leases or rentals of accommodation in apartments, hotels, RV parks, mobile home parks, or condominiums for six months or less.
While the taxes detailed herein are the main tax requirements in Florida, other notable taxes in the state include reemployment tax, fuel tax, communications services tax, gross receipts tax, tobacco and liquor tax, municipal public service tax, and severance tax. Aside from the personal income tax, the state of Florida does not impose an estate or inheritance tax and an intangibles tax.