taxes

State Sales Tax Exemption for Qualified Data Centers

Overview

A "data center" is a facility of at least 100,000 square feet in Texas that has been, or will be, specifically constructed or refurbished to house servers and related equipment for processing, storing or distributing data. The Comptroller's office may certify single-occupant data centers that meet specific requirements related to capital investment and job-creation as "qualifying data centers."

Certain items necessary and essential to the operation of a qualified data center are temporarily exempt from the 6.25 percent state sales and use tax. Local sales taxes are due on purchases of these qualifying items.

Who May Apply?

An owner, operator and/or occupant of a data center can apply to the Comptroller's office for certification of the facility as a qualified data center and for registration as a qualifying owner, qualifying operator or qualifying occupant. Use Form AP-233, Texas Application for Certification as a Qualifying Data Center (PDF).

Data centers with agreements limiting the appraised value of the data center's property under Tax Code Chapter 313 do not qualify for this exemption.

Certification Requirements

Applicants must hold a Texas Sales or Use Tax Permit or a Texas Direct Payment Permit or must apply for a sales or use tax permit or direct payment permit when submitting the data center application.

Applicants must meet all of the following for certification as a qualifying data center:

  • The qualifying owner, operator or occupant of the applicant data center must (singly or jointly) commit to:
    • creating at least 20 qualifying jobs in the county in which the data center is located, not including jobs moved from one Texas county to another; and
    • making, or agreeing to make, a capital investment of at least $200 million in the applicant data center over a five-year period. The five-year period begins on the date the data center is certified by the Comptroller as a qualifying data center.

Documentation outlining the plan to meet the capital investment and jobs requirements must be provided with the application. Information provided on and with the application is confidential.

  • The applicant data center must:
    • be, or will be, located in Texas;
    • have, or will have, at least 100,000 square feet of space in a single building or portion of a single building located in Texas that is, or will be, used by a single qualifying occupant as a data center (the single qualifying occupant may not sublease any portion of the real or personal property within the qualifying data center);
    • be, or will be, specifically constructed or refurbished for use primarily as a facility to house servers and related equipment and support staff in the processing, storage and distribution of data;
    • have, or will have, an uninterruptible power source, generator backup power, a sophisticated fire suppression and prevention system, and enhanced physical security that includes restricted access, video surveillance and electronic systems;
    • not be used primarily by a telecommunications provider to deliver telecommunications services; and
    • not be subject to an agreement limiting the appraised value of the data center's property under Tax Code Chapter 313.
Claiming the Exemption on Qualifying Purchases

After the data center is certified, the Comptroller's office will issue a unique registration number to the qualifying data center and each qualifying owner, qualifying operator and qualifying occupant who applies and establishes eligibility for the exemption. If a party qualifies for multiple positions, such as a qualified owner who is also the qualified operator, the Comptroller will issue only one number.

To claim the data center exemption on a purchase, a qualifying party must provide an exemption certificate listing the registration number of the data center and its own registration number on Form 01-929, Exemption Certificate for Qualifying Data Centers or Qualifying Large Data Center Projects (PDF). This certificate is the only documentation that a seller can accept for this exemption.

The sales tax exemption for qualifying data centers applies only to the 6.25 percent state sales tax. The retailer must collect the applicable local sales and use tax.

Qualifying Purchases

The following items, if necessary and essential to the operation of a qualifying data center, are eligible for the exemption when purchased by a qualifying owner, operator or occupant:

  • 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 tangible personal property described above;
  • any other item of equipment or system necessary to operate any tangible personal property described above, including a fixture; and
  • a component part of any tangible personal property described above.

*Electricity: A predominant use study will be required to differentiate between taxable and nontaxable use of electricity from a single meter, unless the qualifying data center is a stand-alone facility and the qualifying occupant is its sole inhabitant. For more information about predominant use studies, see Rule 3.295, Natural Gas and Electricity. The qualifying owner, qualifying operator or qualifying occupant of a stand-alone qualifying data center is not required to perform a study and can, in lieu of tax, supply its utility provider with a properly completed Form 01-929, Exemption Certificate for Qualifying Data Centers or Qualifying Large Data Center Projects (PDF).

Nonqualifying Purchases

The following items do not qualify for exemption under this program:

  • 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 under Tax Code Section 151.429 (Tax Refund for Enterprise Projects);
  • tangible personal property not otherwise exempted under Tax Code Section 151.359(c)(5) that is incorporated into real estate or into an improvement of real estate;
  • tangible personal property that is rented or leased for a term of one year or less;
  • a taxable service that is performed on tangible personal property exempted by this section, Tax Code Section 151.3111 notwithstanding; or
  • activities that constitute nonresidential real property repair or remodeling.
Local Sales or Use Tax

All qualifying owners, operators and occupants of a qualifying data center will be responsible for filing reports and paying any local use taxes that may be due on purchases of qualifying items.

Exemption Period

The sales tax exemption for a qualified data center is temporary and lasts for 10 or 15 years beginning on the date the Comptroller's office certifies the data center. The length of the exemption period depends on the amount of capital investment the qualifying owner, operator and occupant make.

  • 10 years from certification date – the qualifying owner, operator or occupant of a data center (either singly or jointly) makes a capital investment of at least $200 million, but less than $250 million within the first five years after certification.
  • 15 years from certification date – the qualifying owner, operator or occupant of a data center (either singly or jointly) makes a capital investment of at least $250 million within the first five years after certification.
Verification of Capital Investment and Jobs Creation

The Comptroller will audit each qualifying data center at its five-year anniversary to verify:

  • the amount of capital investment actually made in the qualifying data center; and
  • the number of qualifying jobs created.

The qualifying owner, operator and/or occupant of a qualifying data center are responsible for notifying the Comptroller once all 20 jobs have been created using a properly completed Form 01-160, Qualifying Data Center or Qualifying Large Data Center Project Job Creation Report (PDF).

The Comptroller will review job information annually until it is verified that each qualifying job has been retained for at least five years.

Revocation

If the qualifying owner, operator and occupant of a qualifying data center (either singly or jointly) fail to meet one or more of the certification requirements, the Comptroller will terminate the data center's certification and revoke all related qualifying owner, operator and occupant registration numbers. Certification requirements include:

  • fulfilling the capital investment commitment within five years of the date the data center is certified;
  • creating at least 20 full-time, permanent, qualifying jobs within five years of the date the data center is certified; and
  • maintaining the qualifying jobs for at least five years.

Each person who has his or her registration number revoked is liable for the state sales or use tax, including penalty and interest from the date of purchase, on all tax-free purchases made under the qualified data center exemption.

Purchaser's Recordkeeping

All qualifying owners, operators and occupants of a qualifying data center must keep complete records to document all tax-free purchases made under the qualifying data center exemption and to confirm payment of the local sales and use tax. The records must be retained until the data center's certification expires. In the event of a revocation, all records must be retained until all assessments have been resolved.

Retailer's Good Faith Acceptance of Exemption Certificate and Recordkeeping

The retailer is required to keep the qualifying data center exemption certificate (PDF) containing the registration numbers of the purchaser and its associated data center and all other financial records relating to the exempt sale, including records to document the retailer's collection of the local sales and use tax. The retailer must be able to match invoices of tax-free sales to the purchaser's exemption certificate. The retailer can accomplish this by entering the registration numbers for the purchaser and associated data center on each invoice.

Retailers can verify the registration of a qualified data center and its associated parties (owner(s), operator(s) and/or single occupant) through the Comptroller's online verification system. However, a retailer is not required to verify a registration number before accepting a qualifying data center exemption certificate (PDF) from a purchaser at the time of sale.

A retailer is not required to accept an exemption certificate. If a retailer does not accept an exemption certificate, the purchaser can request from the Comptroller's office a refund of the tax paid.

Sales Tax Refunds

A retailer is required to charge state sales tax if the person claiming a data center exemption does not provide a qualifying data center exemption certificate (PDF) with the required registration numbers at the time of purchase. However, a purchaser can request a refund of sales tax paid from the retailer.

To process a refund, a retailer will use the Comptroller's online verification system to check if the purchaser had a valid data center registration number when the item was purchased.

Purchasers with a valid data center registration number. The retailer can refund the sales tax or give the purchaser an Assignment of Right to Refund (PDF), as long as the purchaser provides a qualifying data center exemption certificate (PDF) with the required registration numbers to the retailer when making that request. Purchases made prior to the date a data center is certified by the Comptroller as a qualifying data center are not eligible for refund.

Purchasers who are new owners, operators or occupants of an existing, certified qualifying data center. New purchasers must apply for a registration number. The new applicant (purchaser) should include the registration number of the existing qualifying data center with the application. When the Comptroller's office processes the application, the effective date of the new applicant's (purchaser's) registration number will be made retroactive to the date the associated qualifying data center was certified by the Comptroller. The purchaser can submit the refund request to the Comptroller's office with the application for registration or return to the retailer for a refund after receiving the registration number.

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