Maryland Enacts Sales Tax Exemption for Qualified Data Centers

Effective July 1, 2020, Maryland has enacted a sales and use tax exemption on certain personal property for qualified data centers. “Qualified data center” means a data center located in Maryland in which an individual or corporation, within 3 years after submitting an application for the exemption has:

• For a data center located in a Tier 1 area, invested at least $2 million in qualified data center personal property and created at least five qualified positions (A Tier 1 area means a Tier 1 county as defined in Section 1-101 of the Economic Development Article; or an Opportunity Zone); or
• For a data center located in any other area of the state, invested at least $5 million in qualified data center personal property and created at least five qualified positions.

A qualified position is a full-time position of indefinite duration that pays at least 150% of the state minimum wage, is newly created because a data center begins or expands in a single location in the state and is actually filled.

“Qualified Data Center” includes:

• A data center that is a co-located or hosting data center where equipment, space and bandwidth are available to lease to multiple customers; and
• An enterprise data center owned and operated by the company it supports.

“Qualified data center personal property” includes:

• Computer equipment or enabling software used for the processing, storage, retrieval, or communication of data, including servers, routers, connections, and other enabling hardware used in the operation of that equipment;
• Heating, ventilation, and air conditioning and mechanical systems, including chillers, cooling towers, air handling units, pumps, energy storage or energy efficiency technology, and other capital equipment used in the operation of that equipment; and
• Equipment necessary for the generation, transformation, transmission, distribution or management of electricity, including exterior substations, generators, transformers, unit substations, uninterruptable power supply systems, batteries, power distribution units, remote power panels, and any other capital equipment necessary for these purposes.

Sales and use tax do not apply to the sale of qualified data center personal property for use at a qualified data center if the buyer provides the vendor with evidence of their eligibility for the exemption.

Interested individuals or corporations must file an application for the data center exemption. If approved, the Department will certify the applicant’s eligibility. The certificate of eligibility must be renewed each year and may not be renewed for more than 10 consecutive years (20 consecutive years if the individual or corporation invests at least $250 million in qualified data center personal property). For at least 3 years after the termination of a certificate, the individual or corporation must maintain certain specified records.

For tax years beginning after June 30, 2020, local governments may exempt or reduce the property tax assessment of qualified data center personal property. (Ch. 640 (S.B. 397), Laws 2020)