Texas Enacts Data Center Exemption for Certain Property

Texas has enacted a temporary sales and use tax exemption for certain tangible personal property used in data centers that meet certain capital investment and new employment requirements. A qualifying data center is one that is a single qualifying applicant who will operate a new data center and who creates at least 20 qualifying jobs in the county in which the data center is location, not including jobs moved from another county within Texas. A qualifying job means a full time, permanent job (a position that will exist for at least 5 years), that pays at least 120% of the county average weekly wage in the county where the job is based. The exemption is effective September 1, 2013. The property must be necessary and essential to the operation of a qualified data center and must be purchased for installation at, incorporation into, or use in a qualifying data center by a qualifying owner, qualifying operator, or qualifying occupant. The following items of tangible personal property qualify for the exemption: electricity; an electrical system; a cooling system; an emergency generator; hardware or a distributed mainframe computer or server; a data storage device; network connectivity equipment; a rack, cabinet, and raised floor system; a peripheral component or system; software; a mechanical, electrical, or plumbing system that is necessary to operate any of the tangible personal property described above; any other item of equipment or system necessary to operate any of the tangible personal property described above, including a fixture; and a component part of certain of the tangible personal property described above. The exemption does not apply to: office equipment or supplies; maintenance or janitorial supplies or equipment; equipment or supplies used primarily in sales activities or transportation activities; tangible personal property on which the purchaser has received or has a pending application for a refund; tangible personal property that is incorporated into real estate or an improvement; tangible personal property that is rented or leased for a term of one year or less; or a taxable service that is performed on tangible personal property exempted under this section. The exemption will begin on the date the data center is certified by the Comptroller as a qualifying data center and will expire on the 10th anniversary of that date if the qualifying occupant, qualifying owner, or qualifying operator independently or jointly makes a capital investment of at least $200 million but less than $250 million; or on the 15th anniversary of that date if a capital investment of $250 million or more is made. Persons eligible to claim an exemption must hold a registration number issued by the Comptroller. The registration number must be stated on the exemption certificate provided by the purchaser to the seller of the property eligible for the exemption. The Texas Comptroller has created a webpage providing information, links, forms, and other resources regarding the data center exemption. To view the webpage, click here.

UPDATE: The Comptroller of Public Accounts has adopted an emergency rule to implement the data center exemption. The rule contains definitions of key terms pertaining to the exemption. The rule also covers the following: items eligible for exemption; exclusions from the exemption; eligibility for certification of a data center; the application process for certifying a data center; the duration of the exemption; exemption certificate; revocation of registration number; documentation and record retention; and local taxes. To view the text of the rule, click here. (H.B. 1223, Laws 2013, effective September 1, 2013; Release, Texas Comptroller of Public Accounts, September 3, 2013; Emergency Rule 34 TAC 3.335, Texas Comptroller of Public Accounts, filed August 28, 2013, effective September 1, 2013, expires December 29, 2013)

Posted on August 26, 2013