Ohio Amends Data Center Exemption and Adopts Digital Products Definitions

Ohio Governor John R. Kasich has signed the fiscal year 2014-2015 state budget, which contains various tax changes. The legislation amends the requirements for Ohio’s computer data center exemption. The state provides a partial or complete sales and use tax exemption for purchases of computer data center equipment and on the installation, delivery, and repair of such equipment for qualified businesses. “Computer data center equipment” means tangible personal property used or to be used for any of the following: (a) To conduct a computer data center business, including equipment cooling systems to manage the performance of computer data center equipment; (b) To generate, transform, transmit, distribute, or manage electricity necessary to operate the tangible personal property used or to be used in conducting a computer data center business; (c) As building and construction materials sold to construction contractors for incorporation into a computer data center.

Per the legislation, an “eligible computer data center” must meet the following requirements: one or more taxpayers operating a computer data center business at the project site will, in the aggregate, make payments for a capital investment project of at least $100 million at the project site during a period of three consecutive calendar years; and one or more taxpayers operating a computer data center business at the project site will, in the aggregate, pay annual compensation of at least $1,500,000 to employees at the project site for each year of the agreement beginning on or after the first day of the 25th month after the agreement was entered into. The legislation expands the definition of a “computer data center business” to include a business that leases a facility to one or more businesses that provides electronic information services. If an applicant ceases operations during the term of the agreement but resumes operations within 18 months, it will not have violated the requirement to maintain the facility as an eligible computer data center. In this case, the data center exemption cannot be claimed during the time operations were not maintained. When an agreement involves multiple taxpayers, each taxpayer will be entitled to a direct payment permit. The legislation also adopts definitions relating to digital products in order to conform to the Streamlined Sales and Use Tax (SST) Agreement. “Specified digital product” means an electronically transferred digital audiovisual work, digital audio work, or digital book. “Digital audiovisual work” means a series of related images that, when shown in succession, impart an impression of motion, together with accompanying sounds, if any. “Digital audio work” means a work that results from the fixation of a series of musical, spoken, or other sounds, including digitized sound files that are downloaded onto a device and that may be used to alert the customer with respect to a communication. “Digital book” means a work that is generally recognized in the ordinary and usual sense as a book. The definitions apply to transactions on or after January 1, 2014 when specified digital products provided for permanent or less than permanent use are taxable regardless of whether continued payment is required. (H.B. 59, Laws 2013, effective September 29, 2013; Bill Analysis, Ohio Legislative Service Commission)

Posted on June 24, 2014