taxes

Qualifying Data Centers Frequently Asked Questions

What is a "qualifying owner"?

A person who owns the building in which a qualified data center is located is the qualifying owner. A qualifying owner can also be the qualifying operator.

If there are multiple owners who want to be registered with the Comptroller's office as a qualifying owner for the sales tax exemption, submit only one application (on Form AP-233, Texas Application for Certification as a Qualifying Data Center (PDF), or Form AP-236, Texas Application for Certification as a Qualifying Large Data Center Project (PDF)) for the data center and attach Qualifying Owner's Identification and Certification sections for any additional owners.

What is a "qualifying operator"?

A person who controls access to a qualified data center, regardless of whether that person owns each item of tangible personal property located at the qualified data center, is the qualifying operator. A qualifying operator can also be the qualifying owner.

If there are multiple operators who want to be registered with the Comptroller's office as a qualifying operator for the sales tax exemption, submit only one application (on Form AP-233, Texas Application for Certification as a Qualifying Data Center (PDF), or Form AP-236, Texas Application for Certification as a Qualifying Large Data Center Project (PDF)) for the data center and attach Qualifying Operator's Identification and Certification sections for any additional operators.

What is a "qualifying occupant"?

A person who contracts with either a qualifying owner or qualifying operator to place, or cause to be placed, tangible personal property at the qualified data center for use by the occupant is the qualifying occupant. The qualifying occupant can also be the qualifying owner and/or the qualifying operator of the qualified data center.

Each qualified data center may only have one occupant. The application for the sales tax exemption must include the name and contact information of the qualifying occupant.

If a direct payment permit holder also qualifies for the qualified data center exemption as a qualified owner, operator or occupant, is the permit holder required to apply for certification?

Yes. The law requires a person to be registered as a qualified owner, operator or occupant of a qualified data center to claim that exemption. The law does not provide any exceptions to the application process.

Can more than one qualifying data center exist in a single building?

Yes. A data center must use at least 100,000 square feet in a single building or portion of a single building. More than one qualifying data center can be located in a single building, provided the building is large enough to contain multiple 100,000-square-foot occupants.

Each data center within a single building must separately meet all of the requirements for certification as a qualifying data center.

What is a capital investment?

A capital investment is the amount paid to acquire capital or fixed assets that are purchased for use in the operation of a qualifying data center, and that, for U.S. federal income tax purposes, qualify as Section 179, Section 1245 or Section 1250 property, as those terms are defined in Internal Revenue Code, §§ 179(d)(1), 1245(a)(3) and 1250(c), respectively.

Examples of capital investment include, but are not limited to, land, buildings, furniture, machinery and equipment used for the processing, storage and distribution of data and labor used specifically to construct or refurbish property actually used in a qualifying data center to house servers and related equipment.

The term does not include:

  • property purchased before Sept. 1, 2013;
  • property purchased by a qualifying owner, qualifying operator, or qualifying occupant from persons or legal entities related by ownership or common control;
  • property that is leased under an operating lease; or
  • expenditures for routine and planned maintenance required to maintain regular business operations.
What is a qualifying job?

A qualifying job is a full-time, permanent job that:

  • pays at least 120 percent of the county average weekly wage in the county in which the job is based;
  • provides at least 1,820 hours of employment a year to a single employee; and
  • will be filled continually for at least five years from the date the first employee starts work in the newly created job.
What is the job creation deadline?

All 20 jobs must be created and filled during the first five years of the data center's certification, but do not have to be created at the same time. For example, five jobs could be created and filled during the first year of certification, an additional 10 jobs created during the third year of certification and the final five jobs created during the fifth year of certification. As long as each of the jobs lasts at least five years, the jobs requirement for the data center would be met. Once all 20 jobs have been created, the parties must submit a Form 01-160, Qualifying Data Center or Qualifying Large Data Center Project Job Creation Report (PDF). The Comptroller will verify the job information annually until the five-year requirement for each job has been met.

Where do I find information about a county's average weekly wage?

The Texas Workforce Commission publishes Quarterly Employment and Wages (QCEW) data online, available by county. You may also contact the Texas Workforce Commission, Labor Market and Career Information, Labor Force Statistics Section at 866-938-4444 or by email at lmci@twc.state.tx.us.

How long can a created job remain vacant due to a termination, promotion or similar action and still count toward the job requirement?

If a vacancy occurs after the position is initially filled and during the five-year period the job must be retained, regardless of the reason for the abandonment of the position, the employer has 120 days from the date of the vacancy to fill the abandoned position.

What happens if a certified data center does not fulfill all of its obligations?

If a certified data center does not fulfill any of its obligations under the statute, the Comptroller will terminate the certification and revoke the data center's sales tax exemption.

Is a predominant use study required for a certified qualifying data center to claim the sales tax exemption on the purchase of electricity?

The qualifying owner, operator or occupant can claim the sales tax exemption on the purchase of electricity that is necessary and essential to the operation of the qualified data center. Unless the data center is metered separately, a predominant use study is required if the data center is:

  • located within a larger facility that performs other functions; or
  • sharing a facility with another inhabitant.

If the data center is a stand-alone facility and the sole inhabitant of that facility, then no predominant use study is required.

Electricity used to power computers and other equipment located within a data center qualifies for exemption. Electricity for heating and cooling in areas housing data center equipment also qualifies for exemption.

Electricity used for areas such as administrative offices, storage areas, break rooms and restrooms is not considered necessary and essential for the operation of the center and, therefore, does not qualify for exemption; neither does electricity used for heating and cooling these areas.

The exempt use must be greater than 50 percent of the total use for the exemption to apply.

See Rule 3.295, Natural Gas and Electricity, for information on the predominant use study.