As of July 1st, 2017, Florida has a new sales and use tax exemption: data centers. This move by the Florida legislature is interesting in a time when many states are attempting to expand exemptions sales tax on technology and data processing to attract the industry to their state. Further, the exemption is expansive in nature. It includes not just the facility itself, but also the fixtures and personal property located at the facility.
The broad exemption is codified in 212.08(5)(s)(1)(d), which covers all personal property used “used exclusively at a data center” to do a variety of things. It even goes so far as to include the electricity used for the data center! The breadth of this exemption does not overshadow its depth, which can result in a great savings on items such as construction materials, machinery and computers, along with their updates and replacements.
However, this wonderful tax-break for data center owners is unfortunately only applicable to centers built on or after July 1, 2017. The exemption is available during the construction of a new data center, but not for the acquisition of an existing data center. The exemption has some limitations, such as the data center must have a capital investment of at least $150 million dollars (over 5 years), have a “critical IT load” of 15 megawatts or higher and a critical IT load of 1 megawatt or higher dedicated to each individual owner or tenant within the data center. The exemption also requires the taxpayer to pre-apply for the exemption and be issued an exemption certificate. One can also expect the Florida Department of Revenue to audit most companies that apply for this exemption, so proper documentation will be key to ultimately being able to utilize the exemption on data centers. Unfortunately, the sales and use tax exemption also does not exempt the data center from the sales tax imposed by 212.031 (rental of real property).
Regardless, wins are a rarity for taxpayers in Florida and this is a big one. An exemption such as this one can help not only Floridians, but it can also bring economic growth to the state by encouraging those in the industry to move here for the tax benefit. It will take years for Florida to fully address the technological realities of the changing economy, but this taxpayer-friendly step is certainly in the right direction.
For those of you interested in the specifics, please find the full text of the new exemption as follows:
“(s) Data center property.—
1. As used in this paragraph, the term:
a. “Critical IT load” means that portion of electric power capacity, expressed in terms of megawatts, which is reserved solely for owners or tenants of a data center to operate their computer server equipment. The term does not include any ancillary load for cooling, lighting, common areas, or other equipment.
b. “Cumulative capital investment” means the combined total of all expenses incurred by the owners or tenants of a data center after July 1, 2017, in connection with acquiring, constructing, installing, equipping, or expanding the data center. However, the term does not include any expenses incurred in the acquisition of improved real property operating as a data center at the time of acquisition or within 6 months before the acquisition.
c. “Data center” means a facility that:
(I) Consists of one or more contiguous parcels in this state, along with the buildings, substations and other infrastructure, fixtures, and personal property located on the parcels;
(II) Is used exclusively to house and operate equipment that receives, stores, aggregates, manages, processes, transforms, retrieves, researches, or transmits data; or that is necessary for the proper operation of equipment that receives, stores, aggregates, manages, processes, transforms, retrieves, researches, or transmits data;
(III) Has a critical IT load of 15 megawatts or higher, and a critical IT load of 1 megawatt or higher dedicated to each individual owner or tenant within the data center; and
(IV) Is constructed on or after July 1, 2017.
d. “Data center property” means property used exclusively at a data center to construct, outfit, operate, support, power, cool, dehumidify, secure, or protect a data center and any contiguous dedicated substations. The term includes, but is not limited to, construction materials, component parts, machinery, equipment, computers, servers, installations, redundancies, and operating or enabling software, including any replacements, updates and new versions, and upgrades to or for such property, regardless of whether the property is a fixture or is otherwise affixed to or incorporated into real property. The term also includes electricity used exclusively at a data center.
2. Data center property is exempt from the tax imposed by this chapter, except for the tax imposed by s. 212.031. To be eligible for the exemption provided by this paragraph, the data center’s owners and tenants must make a cumulative capital investment of $150 million or more for the data center and the data center must have a critical IT load of 15 megawatts or higher and a critical IT load of 1 megawatt or higher dedicated to each individual owner or tenant within the data center. Each of these requirements must be satisfied no later than 5 years after the commencement of construction of the data center.
3.a. To receive the exemption provided by this paragraph, the person seeking the exemption must apply to the department for a temporary tax exemption certificate. The application must state that a qualifying data center designation is being sought and provide information that the requirements of subparagraph 2. will be met. Upon a tentative determination by the department that the data center will meet the requirements of subparagraph 2., the department must issue the certificate.
b.(I) The certificate holder shall maintain all necessary books and records to support the exemption provided by this paragraph. Upon satisfaction of all requirements of subparagraph 2., the certificate holder must deliver the temporary tax certificate to the department together with documentation sufficient to show the satisfaction of the requirements. Such documentation must include written declarations, pursuant to s. 92.525, from:
(A) A professional engineer, licensed pursuant to chapter 471, certifying that the critical IT load requirement set forth in subparagraph 2. has been satisfied at the data center; and
(B) A Florida certified public accountant, as defined in s. 473.302, certifying that the cumulative capital investment requirement set forth in subparagraph 2. has been satisfied for the data center. The professional engineer and the Florida certified public accountant may not be professionally related with the data center’s owners, tenants, or contractors, except that they may be retained by a data center owner to certify that the requirements of subparagraph 2. have been met.
(II) If the department determines that the subparagraph 2. requirements have been satisfied, the department must issue a permanent tax exemption certificate.
(III) Notwithstanding s. 212.084(4), the permanent tax exemption certificate remains valid and effective for as long as the data center described in the exemption application continues to operate as a data center as defined in subparagraph 1., with review by the department every 5 years to ensure compliance. As part of the review, the certificate holder shall, within 3 months before the end of any 5-year period, submit a written declaration, pursuant to s. 92.525, certifying that the critical IT load of 15 megawatts or higher and the critical IT load of 1 megawatt or higher dedicated to each individual owner or tenant within the data center required by subparagraph 2. continues to be met. All owners, tenants, contractors, and others purchasing exempt data center property shall maintain all necessary books and records to support the exemption as to those purchases.
(IV) Notwithstanding s. 213.053, the department may share information concerning a temporary or permanent data center exemption certificate among all owners, tenants, contractors, and others purchasing exempt data center property pursuant to such certificate.
c. If, in an audit conducted by the department, it is determined that the certificate holder or any owners, tenants, contractors, or others purchasing, renting, or leasing data center property do not meet the criteria of this paragraph, the amount of taxes exempted at the time of purchase, rental, or lease is immediately due and payable to the department from the purchaser, renter, or lessee of those particular items, together with the appropriate interest and penalty computed from the date of purchase in the manner prescribed by this chapter. Notwithstanding s. 95.091(3)(a), any tax due as provided in this sub-subparagraph may be assessed by the department within 6 years after the date the data center property was purchased.
d. Purchasers, lessees, and renters of data center property who qualify for the exemption provided by this paragraph shall obtain from the data center a copy of the tax exemption certificate issued pursuant to sub-subparagraph a. or sub-subparagraph b. Before or at the time of purchase of the item or items eligible for exemption, the purchaser, lessee, or renter shall provide to the seller a copy of the tax exemption certificate and a signed certificate of entitlement. Purchasers, lessees, and renters with self-accrual authority shall maintain all documentation necessary to prove the exempt status of purchases.
e. For any purchase, lease, or rental of property that is exempt pursuant to this paragraph, the possession of a copy of a tax exemption certificate issued pursuant to sub-subparagraph a. or sub-subparagraph b. and a signed certificate of entitlement relieves the seller of the responsibility of collecting the tax on the sale, lease, or rental of such property, and the department must look solely to the purchaser, renter, or lessee for recovery of the tax if it determines that the purchase, rental, or lease was not entitled to the exemption.
4. After June 30, 2022, the department may not issue a temporary tax exemption certificate pursuant to this paragraph.”
The Law Offices of Moffa, Sutton, & Donnini, PA have decades of experience representing business owners before the Florida Department of Revenue for Florida sales tax controversy. We handle everything from audits, protests, and litigation, to collections, revocations, investigations, and defense before criminal courts. Our attorneys are here to offer a FREE INITIAL CONSULTATION to confidentially discuss the facts of your case. Contact us at the number on the top of this page now!