Florida's data centers face new sales tax requirements.
Florida, August 21, 2025
The Florida Legislature has approved HB 7031, establishing new sales tax exemption rules for data centers. Effective August 1, data centers must have an IT load of 100 MW or more to qualify for tax exemptions. This shift significantly impacts smaller facilities, likely increasing costs and complicating lease terms. Moving forward, owners of sub-100 MW data centers will face compliance challenges, including potential audits and back taxes. The legislative change aims to attract larger data center projects while leaving smaller ones to grapple with unfavorable market conditions.
In a significant tax reform move, the Florida Legislature has recently approved HB 7031, which introduces new sales tax exemption rules specifically targeting data centers. Effective from August 1, 2025, the new law stipulates that only data centers with an IT load of 100 megawatts (MW) or more will be eligible for state sales tax exemptions. Data centers failing to reach this threshold will completely lose access to tax-free purchases.
This decision represents a drastic change for existing data centers operating below the 100 MW threshold, affecting current owners, tenants, and developers. The existing exemption currently allows for purchase of construction materials, equipment, servers, software, and electricity without incurring sales tax, which offers substantial savings for these facilities.
The alteration in the tax exemption criteria is likely to result in increased direct costs for mid-sized facilities, particularly during construction. Owners of data centers with an IT load under 100 MW will find their construction budgets affected, making it challenging to manage finances effectively. As a result, lease agreements may also come under strain, as less favorable terms may need to be negotiated due to increased costs.
Furthermore, these facilities may find themselves losing their competitive edge when compared to states that offer more inclusive tax incentives for data centers. Florida’s legislature appears committed to attracting mega-scale data center projects, signaling a preference for large-scale operators over smaller entities.
Post-August 2025, owners of sub-100 MW data centers will face new compliance challenges as they must undergo a five-year review process to maintain their sales tax exemption. If a facility falls below the required load, it will automatically be disqualified from receiving the exemption. This will have broader repercussions, particularly regarding ongoing expenses like electricity, which many data centers depend upon.
As a consequence of the exemption’s termination, landlords may struggle to retain existing tenants or attract new ones, which could further impact market dynamics. Current contracts and lease agreements will likely require renegotiation to address the new financial realities stemming from these tax changes.
Contractors engaged in projects for data centers may also face increased costs due to the inability to purchase items tax-free after the effective date. This situation could diminish the feasibility of certain projects that previously relied on tax exemptions. It is important to note that the new tax law does not grant a grandfather clause for existing sub-100 MW data centers, meaning they will not retain exemptions once the new rules take effect.
Data center owners and tenants should also prepare for the potential ramifications of a sales tax audit, which may arise after losing eligibility for tax-exempt purchases. In that event, they would be liable for back taxes, penalties, and interest associated with prior tax-free purchases made under the previous exemptions.
The recent amendment to the sales tax exemption comes on the heels of Florida’s decision to repeal sales tax on commercial leases. Some believe this repeal justifies the elimination of the data center exemption. However, if concerns continue to surface regarding this new policy, there may be efforts to delay its enforcement until further legislative action can be taken next year.
| Feature | Description |
|---|---|
| Effective Date | August 1, 2025 |
| Eligibility Criteria | Data centers must have an IT load of 100 MW or more |
| Exemption Loss | Sub-100 MW data centers will lose sales tax exemption on materials and utilities |
| Review Process | Five-year compliance review for maintaining exemption |
| Audit Liability | Liable for back taxes, penalties, if audited after losing exemption |
HB 7031 is a tax reform package passed by the Florida Legislature that changes the rules for sales tax exemptions for data centers.
The new rules will become effective on August 1, 2025.
Only data centers with an IT load of 100 megawatts (MW) or more will qualify for the sales tax exemption.
Existing sub-100 MW facilities will lose their sales tax exemption, leading to increased costs and potential challenges in maintaining competitiveness.
No, there is no grandfather clause offering protections for existing data centers under 100 MW.
Data center owners should review their operations, consider renegotiating leases, and prepare for potential audits related to tax compliance.
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