North Carolina Enacts Exemption for Qualifying Datacenters

Effective January 1, 2016, North Carolina has enacted a sales and use tax exemption for sales of electricity and datacenter support equipment used at qualifying datacenters. For purposes of the exemption, “datacenter support equipment” is “property that is capitalized for tax purposes under the Code and is used for one of the following purposes:

• The provision of a service or function included in the business of an owner, user, or tenant of the datacenter.
• The generation, transformation, transmission, distribution, or management of electricity, including exterior substations, generators, transformers, unit substations, uninterruptible power supply systems, batteries, power distribution units, remote power panels, and other capital equipment for these purposes.
• HVAC and mechanical systems, including chillers, cooling towers, air handlers, pumps, and other capital equipment used for these purposes.
• Hardware and software for distributed and mainframe computers and servers, data storage devices, network connectivity equipment, and peripheral components and equipment.
• To provide related computer engineering or computer science research.”

A “qualifying datacenter” is defined as a datacenter that satisfies each of the following conditions:

• The datacenter meets the wage standard and health insurance requirements of G.S. 143B-437.08A.
• The Secretary of Commerce has made a written determination that at least seventy-five million dollars ($75,000,000) in private funds has been or will be invested by one or more owners, users, or tenants of the datacenter within five years of the date the owner, user, or tenant of the datacenter makes its first real or tangible property investment in the datacenter on or after January 1, 2012. Investments in real or tangible property in the datacenter made prior to January 1, 2012, may not be included in the investment required by this subdivision.

The North Carolina Department of Revenue has issued a notice detailing what situations will result in forfeiture of the exemption. Forfeiture will result in liability for all taxes avoided as a result of the forfeited exemption including interest. The notice can be viewed here. (Important Notice: Qualifying Datacenter, North Carolina Department of Revenue, December 15, 2015)