Florida is one of the more active states in seeking to lure technology companies into the state. This directive has resulted in favorable tax incentives for new businesses to the state apart from the fact that Florida has no individual state income tax (and generally relative lower corporate income tax laws). A primary incentive is the exemption afforded to "data centers" for "data center property" as set forth in section 212.08(r), Florida Statutes.
Florida exempts from tax "of this chapter" data center property. The starting point of this classification is the definition of "data center" and "data center property" as defined in subparagraphs 1.c. And1.d., respectively. The subparagraphs provide:
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.
While data center property is broadly defined for the exemption, the qualification as a "data center" has a couple bright line tests in subparagraph 2. That subparagraph provides:
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.
The threshold issues are the cumulative capital investment of at least $150 million and a critical IT load (defined in subsection 1.a.) 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. If the business fails on either requirement, then the exemption looks to be unavailable. The exemption does allow for satisfaction of the requirements no later than five years after the commencement of constructions of the data center.
It needs to be noted that subparagraph 2. Excepts section 212.031 from the exemption. This section relates to the tax on rental or license fee for use of real property. This is important for how the data centers operate and invoice customers/tenants for use of the data center property or offered "services". As noted above, data center property is broadly defined for tax exemption for qualifying data centers - but that essentially is for the creation and operation of the data center (including electricity).
The data centers then need to determine proper tax treatment for its operations with customers/tenants. Data centers could provide bitcoin mining for customers using their own servers or could "host" customer servers that are housed at the data center for mining efforts there. These different options provide possible very different tax treatment - this is also applicable to smaller "data centers" that might fall short of the requirements to be a data center that qualifies for the statutory exemption but still provides the same services or facilities.
The first determination will be if the data center provides commercial rent or not. This will be made based on the totality of the arrangement and what/whose materials are used. If customer/tenant materials are used, then arguably the commercial rent statute will trigger sales tax implications (at least until commercial rent is no longer taxable in Florida which could be July 1, 2025, though surtax implications will have to be determined if commercial rent is nontaxable or the state rate is simply reduced to 0 which could leave counties still taxing commercial rent). With only data center property involved, it can be argued that a nontaxable "service" is being provided.
In short time, Florida taxpayers will know whether commercial rent is taxable or not in Florida. Regardless of how that plays out, businesses would be well serviced to consider getting advice from the Florida Department of Revenue (FDOR) on its operations - both for sales or use tax. This could involve a request for a Technical Assistance Advisement (“TAA”). This is a disclosed description of the taxpayer and its operations resulting in a "binding" decision by the FDOR on the tax treatment for the business’ operations. The other option involves a Letter of Technical Advice (LTA). The LTA is nonbinding and generally allows for tax treatment for an "anonymous" scenario. Both options have specific requirements for getting either form of guidance and are important for the particular course of action chosen by the business.
Data center exemption requires application to the Department for a temporary certificate to be used for exempt purchases related to capital investment expenditures in Florida. Providing the exemption certificate relieves sellers from collecting tax and the Department will MUST solely look solely to the purchaser, renter or lessee for recovery of the tax if it is determined that the purchaser, renter or lessee was not entitled to the exemption. Related to this, any tax due from a data center not being entitled to the exemption may be assessed by the Department within 6 (six) years after the date the data center property was purchased, per subparagraph 2.c.
With so many issues associated with the large capital contributions - whether totaling $150 million or less - and subsequent cash flow from customers, it is important that data centers consider all issues before making the decision to pursue operations and the associated exemption in Florida. For businesses already open, the tax refund process in Florida allows for a refund for tax paid in error going back three years from the date of filing the application (DR-26 or DR-26S). In either case, it is never too early to start considering tax implications and available options to correctly pay or collect/remit taxes to the State of Florida - and especially to recover tax paid to the FOR since that clock already started ticking.
About the author: Mr. Parker is a partner in the Law Offices of Moffa, Sutton, & Donnini, P.A., based in the firm's Tampa office. Mr. Parker's practice concentrates on sales and use tax and includes criminal defense of sales tax cases and state tax audits/controversies proceeding from audit through administrative litigation involving sales and use tax and all other state taxes including reemployment tax, communication service tax, and cigarette & tobacco tax. Mr. Parker also handles matters involving the Department of Business and Personal Regulation and Office of Financial Regulation and the industries they oversee. Mr. Parker received his accounting degree, law degree, and L.L.M. in Taxation from the University of Florida. If you have any questions please do not hesitate to contact him at 813-775-2132 or MatthewParker@FloridaSalesTax.com or his firm bio.
About the law firm: At the Law Office of Moffa, Sutton, & Donnini, PA, our primary practice area is Florida taxes, with a very heavy emphasis in Florida sales and use tax. We have defended Florida businesses against the Florida Department of Revenue since 1991 and have over 100 years of cumulative sales tax experience within our firm. Our partners are both CPAs/Accountants and Attorneys, so we understand both the accounting side of the situation as well as the legal side. We represent taxpayers and business owners from the entire state of Florida. Call our offices today for a FREE INITIAL CONSULTATION to confidentially discuss how we can help put this nightmare behind you.
Authority
Rule 12A-1.108 Exemption for Data Center Property, Florida Administrative Code
Section 212.08(5)(r), Florida Statutes – Exemption for Data Center Property
Additional Resources
Nursing Home Sales Tax Refund on Electricity, published December 24, 2016, by David Brennan, Esq.
FL Sales tax sales for resale exemption, published December 10, 2023, by David Brennan, Esq.
FL Sales Tax - Voluntary Disclosure Program, published April 9, 2018, by Law Offices of Moffa, Sutton & Donnini, P.A.