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The Old Exemption Regime: What Was in Place

• Data center owners, tenants, and contractors could purchase equipment, infrastructure, and construction materials tax-free when used in qualifying data center operations.
• Electricity and power costs associated with those data centers, when billed directly to the data center owner or tenant (or passed through), were also often exempt as “data center property.”
• To qualify, the data center needed a critical IT load of at least 15 megawatts, and each tenant or owner within the facility needed a dedicated critical IT load of at least 1 MW.
• There was also a required cumulative capital investment threshold (e.g. $150 million), and compliance had to be satisfied within a specified timeframe.
• Exemptions were not indefinite for all; data centers had to undergo a review every five years to confirm they still met the qualifying criteria.
• Owners and tenants would use the Department of Revenue’s “Data Center Property Temporary Tax Exemption Certificate” and then apply for a permanent “Certificate of Exemption” once the criteria were satisfied.
• Vendors relied on those certificates when selling qualifying equipment or services to data centers, so they would not collect tax.

What Changed: New Thresholds and Tougher Qualification

• New 100 MW Critical Load Threshold To continue qualifying for the exemption, a data center must now certify that its critical IT load is at least 100 megawatts at the time of renewal or review. Facilities with load below that threshold will lose the exemption when they next submit their 5‑year review.
• Impact on Existing Smaller Data Centers Data centers currently under 100 MW will likely lose their exemption status when they undergo the routine review required under the statute. Once they lose eligibility, purchases of new equipment, infrastructure, and electricity may become taxable. There is no express grandfathering for sub‑100 MW centers under the new law.
• Electricity Exemptions Under Strain The elimination of the exemption for electricity costs is among the more significant changes. Many data center leases passed through power costs to tenants or owners under the assumption of tax‑free billing. Under the new law, those electricity expenses may become taxable, increasing ongoing operational costs.
• Contractor & Developer Burden Contractors and vendors who bid on data center buildouts may have assumed tax-free status in their cost estimates. After the effective date, new equipment, materials, and services may no longer be exempt, causing cost increases or contract term renegotiations.
• No Room for Partial Compliance If a data center or its tenants fail to maintain the qualifying criteria, the Department of Revenue may revoke the exemption. That revocation could trigger retroactive tax liability (with interest and penalties) on prior tax-exempt purchases that were made while the facility was out of compliance.
• Expanded Duration of the Exemption Regime Though stricter, the exemption itself is now slated to last through 2037 for data centers that qualify under the new rules—creating a longer horizon for compliant facilities.
• Administrative and Certification Changes The law places a greater burden on documentation, certification (by engineers and accountants), and ongoing reporting to maintain exemption status.

Who Is Affected?

Practical Impacts & Risks

• Cost escalation: Data centers that lose exemptions will see higher capital and operating expenditures.
• Lease disruption: Tenants may claim breach or demand adjustment in leases, especially if tax exemption was central to financial projections.
• Retroactive tax liability: If a data center is found out of compliance, the Department of Revenue may assess back taxes, interest, and penalties on purchases made when exemption was presumed.
• Contract enforcement issues: Contracts negotiated before the law change may not adequately allocate risk for loss of exemption. Disputes may arise around who bears the added tax burden.
• Barrier to smaller projects: The 100 MW threshold may discourage smaller scale data center developments or push them to other states with more favorable rules.
• Due diligence concerns: Buyers or financiers considering data center assets must carefully audit their tax qualification status and risk exposure.

What Stakeholders Should Do Now

• Perform a load and investment audit Determine whether your data center currently meets 100 MW load, investment thresholds, or can be upgraded to meet them.
• Review lease and contract terms Check whether leases or construction contracts implicitly assume the continued tax exemption. Consider renegotiations or protective amendments.
• Engage tax and engineering experts Secure certifications from professional engineers (regarding critical IT load) and accountants to validate compliance under new rules.
• Recalculate cost models Update forecasts and financial models to include tax costs on electricity, equipment, and infrastructure purchases if exemption is lost.
• Submit timely documentation Ensure that you file all necessary applications, exemption certificates, and renewal declarations per updated Florida Administrative Code rules.
• Monitor Department of Revenue guidance Stay alert for rulemaking, audit procedures, and clarifications from Florida’s Department of Revenue, which may affect enforcement and taxpayer relief.
• Consider strategic expansions If you operate sub‑100 MW, evaluate whether consolidation or growth to 100 MW is feasible to retain the exemption.
• Communicate with tenants and stakeholders Be transparent with tenants, lenders, and investors so they understand the tax exposure and potential cost changes.

Conclusion