Several years ago, many states were uninterested in attracting data center projects. States have typically valued job creation over investment, and while the investments associated with these projects were significant (a large data center project can involve $1 billion in capital investment up front and significant equipment refresh on an ongoing basis), the job creation was nominal. However, following North Carolina’s success attracting brand names like Google, Facebook, and Apple with its data center incentive program, states began to recognize the importance of attracting these investments.
Many states now have established specific sales tax abatements and exemptions for data centers. These programs provide sales tax relief to data centers over an extended period of time, and show that states are serious when they label data center projects a strategic priority. A brief description of the program qualifications and benefits for some key states offering specific data center exemptions is listed below.
In 2012, Alabama passed legislation that allows eligible data processing centers to abate certain sales and use as well as property taxes. The property tax abatement ranges from 10 years to 30 years based on the level and the timing of the investment and applies to certain ad valorem taxes for costs of the data processing center that may be capitalized for federal income tax purposes. The sales and use tax abatement applies to certain taxable services and acquisitions of real and tangible personal property comprising the data processing center, the costs of which may be capitalized for federal income tax purposes.
Eligible data centers must create at least 20 new jobs with an average annual wage of $40,000. There is no investment threshold requirement for new projects, while expanding data center facilities investment must equal the lesser of $2 million or 30 percent of the existing value of the property. Local municipalities must also approve the abatements.
Many states now have established specific sales tax abatements and exemptions for data centers.
The Computer Data Center (CDC) Program provides qualifying data centers with state and local transaction privilege tax and use tax exemptions on the purchases of qualifying equipment. In 2016, changes were made to the CDC Program including an application (pre-approval) and certification requirement, expansion of the exemptions to rented or leased equipment and software, and changed investment requirements among other things. The exemptions are usually available for up to 10 years but can go as high as 20 years if the data center qualifies as a sustainable redevelopment project.
New CDC qualifying data centers must invest at least $25 million or $50 million in land, buildings, improvements, and modular data centers and computer data center equipment by the fifth anniversary of the certification, depending on the population of the county. Existing CDC qualifying data centers must have invested $250 million during the 72 months immediately before September 1, 2013. The program will sunset December 31, 2023.
Georgia provides a 100 percent sales tax exemption on the purchase and lease of eligible computer equipment and construction materials for qualified high-technology projects that invest at least $15 million in a single year.
A sales exemption and a sales tax refund are available for data centers in Iowa on certain types of property. The exemption is available for sales or rental of computers and equipment necessary for the maintenance and operation of data centers located in Iowa that are at least 5,000 square feet and that invest at least $200 million (including land) within the first six years of operation in Iowa. Sales of electricity purchased for use by the data center, as well as backup power generation fuel, also are exempt.
Data centers that do not qualify for the exemption may qualify for a refund of 50 percent of sales and use tax paid on the purchase of computers, machinery, other equipment, and fuel used to power the data centers. The value and length of the refund depends on various project parameters. Qualified new data centers must be at least 5,000 square feet in size and have an investment of at least $10 million within the first six years of operation in Iowa. Businesses rehabilitating an existing building to be used for a qualified data center must have investment of at least $5 million. The refund may be available for a period of seven to 10 years, depending on the amount of the investment.
Qualified data centers located in Minnesota are eligible for a statutory sales tax exemption on certain purchases. In addition, electricity used or consumed in the operation of a qualified data center or qualified refurbished data center is also exempt from sales tax. The exemption must be claimed within 20 years of the date of the first qualifying purchase or by June 30, 2042.
A qualified data center has one or more buildings that are at least 25,000 square feet (30,000 if prior to July 1, 2013), is located on one parcel or on contiguous parcels, and has investment of at least $30 million ($50 million if prior to July 1, 2013) within a 48-month period (24 months period prior to July 1, 2013).
New and expanding data storage centers in Missouri are eligible for a state and local sales tax exemption for purchases of tangible personal property and materials for the construction of the facility as well as machinery, equipment, and computers used in the data storage center. The exemption also applies to all electrical energy, water, and other utilities including telecommunication and Internet services used in a new data center or the incremental increase in such utilities in an expanded data center. The exemption period is up to 10 years for expanding data center facilities and up to 15 years for new data center facilities.
A new data center facility includes those that were acquired or leased on or after August 28, 2015, invests at least $25 million, and creates at least 10 new jobs with average wages that meet or exceed 150 percent of the county average wage during a 36-month period. An expanding data center facility includes those that operated in Missouri prior to August 28, 2015, invests at least $5 million in a 12-month period, and creates at least five new jobs with average wages that meet or exceed 150 percent of the county average wage during a 24-month period.
Nebraska provides a data center property sales and use tax exemption as well as a personal property tax exemption. Nebraska also offers new and expanding businesses incentives primarily through its tiered Nebraska Advantage program, which provides a number of income, sales, withholding, and property tax incentives. The type and level of incentives vary depending on the size of the capital investment and the job creation associated with a project.
Large data center projects must meet an investment threshold of at least $200 million and create more than 30 new full-time jobs with an average annual wage of $24,711. Benefits under the program include a sales tax refund for data center project purchases, a wage credit on employees whose wage is at least 60 percent of the state’s average weekly wage, and a 10 percent investment credit. The state will stop accepting applications for the Nebraska Advantage program after December 31, 2020.
Qualifying data centers in North Carolina are eligible for a sales and use tax exemption on electricity used at the facility and on the purchase of data support equipment. A qualifying data center must invest at least $75 million within five years. In addition, the facility must meet the county wage standards and provide health insurance to employees and pay at least 50 percent of the premiums. A qualifying Internet data center must invest at least $250 million on one parcel or contiguous parcels within five years in a Tier 1 or 2 county.
A sales tax exemption on computer software is also available for data centers in North Carolina.
Ohio has a discretionary, full or partial sales and use tax exemption on data center equipment. Preapproval from the Ohio Tax Credit Authority prior to constructing the project is required. An agreement also has to be executed outlining the project capital investment, percentage of the exemption, and requirements of the tax credit. The exemption also includes delivery, installation, or repair charges.
Eligible data centers projects must involve capital investment of at least $100 million over a three-year consecutive period. Additionally, the program requires annual payroll for employees at the computer data center to be at least $1.5 million.
Tennessee exempts qualified data center equipment and software from sales tax as industrial machinery and equipment if used in a qualified data center. To qualify, a data center project must involve capital investment greater than $100 million and the creation of at least 15 new full-time jobs earning 150 percent of the state average occupational wage during a three-year period.
There is no sales tax on cooling equipment or backup power infrastructure for qualified data centers. In addition, there is a reduced sales tax rate of 1.5 percent on electricity sold or used by a qualified data center.
Texas exempts from sales and use tax purchases of certain tangible personal property used at qualifying data centers. The data center has to be certified by the state as a qualified data center before the exemption begins. The exemption expires on the 10-year ($200 million but less than $250 million of capital investment) or 15-year (at least $250 million of capital investment but less than $500 million) or 20-year (at least $500 million of capital investment) anniversary of the certification depending on the capital investment level.
The qualifying data center project must create at least 20 jobs (40 jobs for large data center projects) that pay 120 percent of the county average wage and make a capital investment of at least $200 million over a five-year period ($500 million for large data center projects). Large capital investment projects must also agree to contract for at least 20 megawatts of transmission capacity for operation of the large data center project. These exemptions cannot be combined with property tax incentives under Tax Code, Chapter 313 (appraised value limitation) received by qualifying data center projects.
Virginia has a sales tax exemption on data center equipment and enabling software. To qualify for the exemption, a data center project in Virginia must involve $150 million in capital investment on or after January 1, 2009, and the creation of 50 new full-time jobs paying 150 percent times the average wage of the community in which the data center is located. If the data center is located in an enterprise zone or a locality that has an unemployment rate for the preceding year that is at least 150 percent of the average statewide unemployment rate, the new job requirement drops to 25.
Washington provides a sales and use tax exemption on the purchase of server equipment and power infrastructure for use in eligible data centers. The data center must be located within a rural county with at least 20,000 square feet dedicated to housing working servers, and the building permit must be issued between July 1, 2015 and June 30, 2025. An application must be submitted in order to obtain an exemption certificate. Only eight exemption certificates will be issued for projects with construction starting after July 1, 2015 but before July 1, 2019, and only four additional certificates will be issued for projects with construction through July 1, 2025. Eligible projects must create 35 family-wage jobs (pay 150 percent of county wage and entitled to health insurance coverage) or three positions for each 20,000 square feet of space or less that is newly dedicated to housing working servers.