Were a data center's fixed monthly circuit-access fees subject to Florida gross receipts tax on electricity?

Plain-English summary

The Florida Department of Revenue concluded that a data center's fixed monthly breakered-power fees were not subject to gross receipts tax on electricity.

The data center bought electricity from a utility and paid the applicable taxes. It was not an electric distribution company, did not sell transportation of electricity, and did not charge customers according to kilowatt-hours used. Customers paid the same circuit fee regardless of actual power usage, subject to the circuit's capacity limit.

The fees were not tax-free, however. The Department treated them as consideration for the customers' license to use real property and stated that they were taxed accordingly under Florida's commercial-rental tax.

What this means for you

Data-center operators

A fixed capacity or circuit fee may fall outside electricity gross receipts tax when it is not a charge for metered electricity or its delivery.

Accountants and tax professionals

Classifying a charge outside one tax does not end the analysis; this ruling treated the same fee as taxable commercial-rental consideration.

Common questions

Q: Was the data center a distribution company?
A: No.

Q: Were the fixed circuit fees subject to gross receipts tax?
A: No.

Q: Did that mean the fees were entirely untaxed?
A: No. They were treated as consideration for the license to use real property and taxed accordingly.

Citations and references

• Fla. Stat. §§ 203.01(1)(c)1., 203.012(1), 212.031, and 213.22
• Fla. Admin. Code r. 12A-1.070

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 15A-003

Original ruling text

Executive Director
Marshall Stranburg

QUESTION: ARE CERTAIN POWER FEES CHARGED BY A DATA CENTER SUBJECT TO
SALES AND USE TAX?
ANSWER: NO.
February 24, 2015

Re:

Technical Assistance Advisement – TAA 15A-003
Taxability of Electric Power Fees
Gross Receipts Tax
Section 203.01, Florida Statutes (F.S.)
XXXX (the Taxpayer)
FEI #: XXXX

Dear XXXX:
This is in response to your letter dated XXXX, requesting this Department’s issuance of a Technical
Assistance Advisement (“TAA”) pursuant to Section 213.22, F.S., and Rule Chapter 12-11, Florida
Administrative Code (F.A.C.), regarding the taxability of gross receipts derived from the sale of power
fees. An examination of your letter has established that you have complied with the statutory and
regulatory requirements for issuance of a TAA. Therefore, the Department is hereby granting your
request for a TAA.
ISSUE
The issue is whether certain power fees charged by a data center are subject to gross receipts tax.
FACTS
The Taxpayer owns and operates a data center in XXXX, Florida. The Taxpayer is one of 14 affiliated
data center companies, owned by XXXX, that are engaged in the business of owning and operating multitenant data centers across the country. The subject data center houses customers’ networking, storage and
communications technology infrastructure, including servers, storage devices, switches, routers and fiber
optic transmission equipment. Your request indicates in part the following:
[The Taxpayer’s] XXXX data center is a 45,200 square foot multi-tenant facility that houses
equipment and provides connectivity to more than 40 companies, including [content delivery
networks], network providers, [manage service providers], and regional enterprises. [The
Taxpayer] receives electrical service at the data center from XXXX, and [the Taxpayer] pays all
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Tallahassee, Florida 32399-0100

Technical Assistance Advisement
Page 2
applicable sales and gross receipts taxes charged on those services. [The Taxpayer] is not an
electric utility and does not generate electricity for use by its customers, except on very rare
occasions when temporary generators may be used to provide emergency back-up power in the
event of a natural disaster or prolonged utility power outage. Pursuant to an agreement, termed,
“Master License and Service Agreement” (MSA), the Taxpayer’s customers can opt to pay the
Taxpayer, for power usage, a “Breakered Power Fee.” The fee is an agreed upon monthly
recurring power fee paid by customers to use a specific alternating or direct current power circuit.
The fee is paid regardless of any usage; however, a customer is only allowed to utilize 80 percent
of a power circuit’s breakered capacity limit. Should a customer require additional power for its
equipment, it must pay for additional power circuits with sufficient capacity to accommodate its
additional power draw needs. You also provided that the Taxpayer does not purify or manipulate
power received from XXXX.
TAXPAYER ARGUMENT
It is your position the power fees do not represent payments for resold electricity. Further, you assert
these fees are not subject to gross receipts tax. You provide in part the following:
A. [The Taxpayer] is Not Reselling Electricity Under Its Breakered Power Fee Model.
First, [the Taxpayer] is not reselling electricity to its customers under its Breakered Power Fee
model. The facts above and documents attached demonstrate that [the Taxpayer] charges the
monthly recurring Power Fee and Redundant Additional Power Fee [ 1] under its Breakered
Power Fee model in exchange for granting the customer the right to license an electrical circuit
of a specified capacity on the data center’s critical power infrastructure, regardless of whether
the customer ever draws any electricity over that circuit. Whether the customer draws 10% of
the circuit’s capacity one month versus 80% of its capacity the next month, the charge for that
circuit remains the same each month. [The Taxpayer] concedes that these fees are subject to
the commercial rentals tax in this context (as the auditor determined) 2, but there is no resale of
electricity from [the Taxpayer] to its customer.
Rather, [the Taxpayer] is compensated for licensing the use of space and the power circuit to
its customer, and providing other services to the customer in relation to such space. [The
Taxpayer] provisions electricity service that [the Taxpayer] pays for and owns, allowing the
customer to access and use that electricity to conduct its business. But the customer never
owns any amount of that electricity, nor does the customer pay [the Taxpayer] to purchase such
electricity. [The Taxpayer] is not an “electric utility” selling power subject to sales tax. There
is only one sale of electricity under [the Taxpayer]’s Breakered Power Fee model, and that is
[the Taxpayer]’s purchase of electricity from XXXX, on which [the Taxpayer] pays all
applicable taxes.
In any event, [the Taxpayer] does not “mark-up” utility charges to its customers, within the
meaning of the last sentence in current Rule 12A-1.070(4)(e). [The Taxpayer] does not charge
its customers an amount per kilowatt hour that exceeds the price charged to [the Taxpayer] by
FP&L for those kilowatt hours. Rather, [the Taxpayer] charges its customers a set monthly
recurring amount for the licensed circuits, regardless of whether the customers use all of their

1
2

This fee is charged if a customer desires an additional circuit in the unlikely event the primary circuit fails.
The Taxpayer is not currently under audit.

Technical Assistance Advisement
Page 3
circuits’ capacity or whether they use any electricity at all. The price charged by [the
Taxpayer] is a license fee per circuit, not an amount per kilowatt of electricity drawn. There is
simply no correlation between the two, and the audit staff mixes apples and oranges in
attempting to equate them.
B. Gross Receipts Tax Does Not Apply to [the Taxpayer]’s Breakered Power Fee Model.
Second, [the Taxpayer]’s Power Fee and Redundant Additional Power Fee charges under its
Breakered Power Fee model are not subject to the gross receipts tax under the plain terms of
the tax laws, for several reasons:
• [The Taxpayer] does not deliver “utility services” to its customers under its Breakered
Power Fee model, as that term is defined in Section 203.012(3). [The Taxpayer] does not
transport, deliver, transmit and distribute electricity, as those terms are commonly
understood and applied in the industry, all of which are required in order to constitute
taxable “utility services” for gross receipts tax purposes.
• [The Taxpayer]’s charges for its the Power Fee and Redundant Additional Power Fee
under its Breakered Power Fee model are not “subject to the tax levied pursuant to s.
212.05(1)(e)1.c. or s. 212.06(1)” as provided in Section 203.01(1)(a)3. [The Taxpayer] is
not an “electric utility” subject to Rule 12A-1.053(1)(a). Rather, these charges are subject
to the commercial rentals tax under Section 212.031 and Rule I 2A- 1.070, as additional
consideration for the customer’s license to use real property.
• [The Taxpayer] is not a “distribution company” within the meaning of Section 203.012(1)
and Rule 12B-6.001(2)(b), and is therefore not subject to the gross receipts tax under
Section 203.01(1)(c)l. [The Taxpayer] does not own or operate local electric distribution
facilities for the transmission, delivery, and sale of electricity, as those terms are
commonly understood and applied in the industry. Further, [the Taxpayer] does not charge
its customers for both electricity and transportation of electricity, as required by Section
203 .01(1)(c)1.
• [The Taxpayer] is not subject to the gross receipts tax in Section 203.01(1)(d)1., because
it is not a “distribution company” for the reasons discussed above, and because [the
Taxpayer] does not charge its customers under its Breakered Power Fee model for “the
number of kilowatt hours delivered.”
For these reasons, [the Taxpayer] is not reselling electricity to its customers under its Breakered
Power Fee model and its Power Fee and Redundant Additional Power Fee charges are not subject
to the gross receipts tax. (Emphasis in original.)
LAW AND DISCUSSION
Regarding gross receipts tax, s. 203.01(1)(c)1., F.S., provides:
The tax imposed under subparagraph (a)1. shall be levied against the total amount of gross receipts
received by a distribution company for its sale of utility services if the utility service is delivered to
the retail consumer by a distribution company and the retail consumer pays the distribution

Technical Assistance Advisement
Page 4
company a charge for utility service which includes a charge for both the electricity and the
transportation of electricity to the retail consumer. The distribution company shall report and remit
to the Department of Revenue by the 20th day of each month the taxes levied pursuant to this
paragraph during the preceding month.
The definition of a distribution company can be found in s. 203.012(1), F.S., which provides:
“Distribution company” means any person owning or operating local electric or natural or
manufactured gas utility distribution facilities within this state for the transmission, delivery, and
sale of electricity or natural or manufactured gas. The term does not include natural gas
transmission companies that are subject to the jurisdiction of the Federal Energy Regulatory
Commission.
Based on the facts of this case, the Taxpayer is not a distribution company selling electricity. Nor is it
selling the transportation of any electricity. The company is charging a set rate based on the number of
circuits utilized. This amount is properly treated as the consideration for the license to use real property
(and taxed accordingly for sales and use tax).
RESPONSE
The subject power fees charged in connection with the “breakered power fee model” are not subject to
gross receipts tax, because, the Taxpayer is not a distribution company, it charges a set rate based on
circuits (and not usage), and it does not manipulate or purify electricity it buys from XXXX.
This response constitutes a Technical Assistance Advisement under Section 213.22, F.S., which is binding
on the Department only under the facts and circumstances described in the request for this advice as
specified in Section 213.22, F.S. Our response is predicated on those facts and the specific situation
summarized above. You are advised that subsequent statutory or administrative rule changes, or judicial
interpretations of the statutes or rules, upon which this advice is based, may subject similar future
transactions to a different treatment than expressed in this response.
You are further advised that this response, your request and related backup documents are public records
under Chapter 119, F.S., and are subject to disclosure to the public under the conditions of s. 213.22, F.S.
Confidential information must be deleted before public disclosure. In an effort to protect confidentiality,
we request you provide the undersigned with an edited copy of your request for Technical Assistance
Advisement, the backup material and this response, deleting names, addresses and any other details which
might lead to identification of the taxpayer. Your response should be received by the Department within
15 days of the date of this letter.
If you have any further questions with regard to this matter and wish to discuss them, you may contact me
directly at (850) 717-6306.
Sincerely,

R. Clay Brower
Revenue Program Administrator
Technical Assistance & Dispute Resolution
Record ID: 184997