High-Tech Data Centers Sales and Use Tax Exemption on Equipment

On May 7, 2018, Georgia Governor Nathan Deal signed House Bill 696 into law creating a new sales and use tax economic development incentive for high-technology data center projects, which create jobs and make substantive investments in the state. The program will be effective for transactions occurring on or after July 1, 2018 through December 31, 2028.

This new incentive, which does not affect existing sales and use tax exemptions as provided through the Computer Hardware and Software for High-Technology Companies Program (GA. Comp. R. &Regs. 560-12-2-.107), allows for a sales and use tax exemption for colocation (a.k.a. “colo”) data centers and their qualified customers if a minimum number of new quality jobs are created, and a qualifying investment threshold is met. Additionally, single-user data centers will now be able to exempt additional types of equipment than what is currently allowed under the Computer Hardware and Software for High-Technology Companies Program.

Eligibility

To qualify for the sales and use tax exemption as a high-technology data center project under this program, the project must create at least 20 new “quality jobs.” A “quality job” is defined as one which (a) is located in Georgia; (b) has at least a 30-hour regular workweek; (c) is not a job that is or was already located in Georgia, regardless of which taxpayer for which the individual performed services; and (d) pays at least 110% of the average wage of the county where it is located. The project must incur qualifying purchases and/or leases of high-technology data center equipment, which will be incorporated or used in a facility, campus of facilities, or array of interconnected facilities in Georgia that is developed to power, cool, secure, and connect its own equipment or the computer equipment of high-technology data center customers. Additionally, the project is required to present a seven-year investment budget that meets the following minimum thresholds based on the population of the county in which the project will reside:

• $250 million in counties with a population more than 50,000
• $150 million in counties with a population between 30,000–50,000
• $100 million in counties with a population less than 30,000

Customers of a high-technology data center project may receive their own sales and use tax exemption certificate for their eligible equipment and expenses in a qualified high-technology data center. An eligible customer is defined as a client, tenant, licensee, or end user of a high-technology data center that signs, at minimum, a 36-month contract for service with the data center. The Georgia Department of Revenue (GDOR) has indicated that it anticipates allowing these investments made by eligible customers to count towards meeting the minimum investment threshold as delineated above.

Eligible high-technology data center equipment subject to this exemption is defined to include “computer equipment” of a high-technology data center or its customers to be used or deployed in the data center; the materials, components, machinery, hardware, software, or equipment such as emergency backup generators, air handling units, cooling towers, energy storage or energy efficiency technology, switches, power distribution units, switching gear, peripheral computer devices, routers, batteries, wiring, cabling, or conduit, which are used to (a) create, manage, facilitate, or maintain the physical and digital environments for computer equipment; (b) protect the data center equipment from physical, environmental, or digital threats; or (c) generate or provide constant delivery of power, environmental conditioning, air cooling, or telecommunications services for the data center. Eligible equipment excludes real property and high-technology data center equipment the data center or its customers purchase and then lease to another party more than once to meet the minimum investment threshold (H.B. 696, Laws 2018, effective January 1, 2019).

As a condition of the issuance of a sales and use tax exemption certificate, the GDOR Commissioner, at his or her discretion, may require the data center to post a surety bond in an amount of up to $20 million. The Commissioner may revoke the exemption certificate at any time if it is determined that the data center is not in compliance with its seven-year investment budget plan or if it is believed that the project is unlikely to meet its minimum investment threshold. In such an event, the data center and its customers will be required to repay all taxes exempted or refunded, with interest. In the case where a surety bond has been issued and a compliance failure has been determined, the bond shall be forfeited and paid to the general fund in an amount equal to all taxes and interest required to be repaid to the state.

Conditions

The use of a sales and use tax exemption certificate(s) for a data center project under this program prohibits the data center’s ability to claim income tax credits for the same project. These credits, authorized under O.C.G.A. §§ 48-7-40 through 48-7-33 or O.C.G.A. § 36-62-5.1, include Jobs Tax Credits, Quality Jobs Tax Credits, Mega Project Tax Credits, Investment Tax Credits, Research and Development Tax Credits, Retraining Tax Credits, Child Care Tax Credits, Port Tax Credit Bonus, and Parolee Tax Credits.

Reporting

Each qualified data center that has been issued a sales and use tax exemption under this program will be required to provide the GDOR with a list of customers who have deployed high-technology data center equipment in its facility. The data center must also provide the GDOR Commissioner with an annual report stating the total amount of taxes exempted, the number of new quality jobs created and maintained, and the total payroll resulting from the construction, maintenance, and operation in and on the facility during the preceding year. Additionally, within 60 days of the conclusion of the seven-year investment period, a final report must be filed to the GDOR by the data center to demonstrate that the project expenditures have met the minimum investment threshold and report on the number of all new quality jobs that have been created.

Applications for this program will be accepted beginning on January 1, 2019. Projects that begin qualified purchases on or after July 1, 2018 can claim a refund for sales and use taxes incurred during this six-month period.

* Note – The Georgia Department of Revenue (GDOR) has noted that this program’s details are subject to revision once it is clarified by rules and regulations which will be promulgated prior to December 31, 2018. This will allow the implementation of the policy as set forth in Code Section 48-8-3 of the Official Code of Georgia Annotated. Ryan will be tracking these new rules and regulations as they are developed by the GDOR and will provide updates to clients as they become available.

On May 7, 2018, Georgia Governor Nathan Deal signed House Bill 696 into law creating a new sales and use tax economic development incentive for high-technology data center projects, which create jobs and make substantive investments in the state. The program will be effective for transactions occurring on or after July 1, 2018 through December 31, 2028.

This new incentive, which does not affect existing sales and use tax exemptions as provided through the Computer Hardware and Software for High-Technology Companies Program (GA. Comp. R. &Regs. 560-12-2-.107), allows for a sales and use tax exemption for colocation (a.k.a. “colo”) data centers and their qualified customers if a minimum number of new quality jobs are created, and a qualifying investment threshold is met. Additionally, single-user data centers will now be able to exempt additional types of equipment than what is currently allowed under the Computer Hardware and Software for High-Technology Companies Program.

Eligibility

To qualify for the sales and use tax exemption as a high-technology data center project under this program, the project must create at least 20 new “quality jobs.” A “quality job” is defined as one which (a) is located in Georgia; (b) has at least a 30-hour regular workweek; (c) is not a job that is or was already located in Georgia, regardless of which taxpayer for which the individual performed services; and (d) pays at least 110% of the average wage of the county where it is located. The project must incur qualifying purchases and/or leases of high-technology data center equipment, which will be incorporated or used in a facility, campus of facilities, or array of interconnected facilities in Georgia that is developed to power, cool, secure, and connect its own equipment or the computer equipment of high-technology data center customers. Additionally, the project is required to present a seven-year investment budget that meets the following minimum thresholds based on the population of the county in which the project will reside:

• $250 million in counties with a population more than 50,000
• $150 million in counties with a population between 30,000–50,000
• $100 million in counties with a population less than 30,000

Customers of a high-technology data center project may receive their own sales and use tax exemption certificate for their eligible equipment and expenses in a qualified high-technology data center. An eligible customer is defined as a client, tenant, licensee, or end user of a high-technology data center that signs, at minimum, a 36-month contract for service with the data center. The Georgia Department of Revenue (GDOR) has indicated that it anticipates allowing these investments made by eligible customers to count towards meeting the minimum investment threshold as delineated above.

Eligible high-technology data center equipment subject to this exemption is defined to include “computer equipment” of a high-technology data center or its customers to be used or deployed in the data center; the materials, components, machinery, hardware, software, or equipment such as emergency backup generators, air handling units, cooling towers, energy storage or energy efficiency technology, switches, power distribution units, switching gear, peripheral computer devices, routers, batteries, wiring, cabling, or conduit, which are used to (a) create, manage, facilitate, or maintain the physical and digital environments for computer equipment; (b) protect the data center equipment from physical, environmental, or digital threats; or (c) generate or provide constant delivery of power, environmental conditioning, air cooling, or telecommunications services for the data center. Eligible equipment excludes real property and high-technology data center equipment the data center or its customers purchase and then lease to another party more than once to meet the minimum investment threshold (H.B. 696, Laws 2018, effective January 1, 2019).

As a condition of the issuance of a sales and use tax exemption certificate, the GDOR Commissioner, at his or her discretion, may require the data center to post a surety bond in an amount of up to $20 million. The Commissioner may revoke the exemption certificate at any time if it is determined that the data center is not in compliance with its seven-year investment budget plan or if it is believed that the project is unlikely to meet its minimum investment threshold. In such an event, the data center and its customers will be required to repay all taxes exempted or refunded, with interest. In the case where a surety bond has been issued and a compliance failure has been determined, the bond shall be forfeited and paid to the general fund in an amount equal to all taxes and interest required to be repaid to the state.

Conditions

The use of a sales and use tax exemption certificate(s) for a data center project under this program prohibits the data center’s ability to claim income tax credits for the same project. These credits, authorized under O.C.G.A. §§ 48-7-40 through 48-7-33 or O.C.G.A. § 36-62-5.1, include Jobs Tax Credits, Quality Jobs Tax Credits, Mega Project Tax Credits, Investment Tax Credits, Research and Development Tax Credits, Retraining Tax Credits, Child Care Tax Credits, Port Tax Credit Bonus, and Parolee Tax Credits.

Reporting

Each qualified data center that has been issued a sales and use tax exemption under this program will be required to provide the GDOR with a list of customers who have deployed high-technology data center equipment in its facility. The data center must also provide the GDOR Commissioner with an annual report stating the total amount of taxes exempted, the number of new quality jobs created and maintained, and the total payroll resulting from the construction, maintenance, and operation in and on the facility during the preceding year. Additionally, within 60 days of the conclusion of the seven-year investment period, a final report must be filed to the GDOR by the data center to demonstrate that the project expenditures have met the minimum investment threshold and report on the number of all new quality jobs that have been created.

Applications for this program will be accepted beginning on January 1, 2019. Projects that begin qualified purchases on or after July 1, 2018 can claim a refund for sales and use taxes incurred during this six-month period.

* Note – The Georgia Department of Revenue (GDOR) has noted that this program’s details are subject to revision once it is clarified by rules and regulations which will be promulgated prior to December 31, 2018. This will allow the implementation of the policy as set forth in Code Section 48-8-3 of the Official Code of Georgia Annotated. Ryan will be tracking these new rules and regulations as they are developed by the GDOR and will provide updates to clients as they become available.