Tax Type
Retail Sales and Use Tax
Description
Investment and job creation requirements /Retail Sales and Use Tax data center exemption
Topic
Exemptions
Date Issued
10-27-2011
October 27, 2011
Re: Ruling Request: Retail Sales and Use Tax
Dear *****:
This is in response to your request for a ruling on the Retail Sales and Use Tax exemption available for certain data centers.
FACTS
You seek the Department's interpretation of the investment and job creation requirements of the Retail Sales and Use Tax data center exemption in three scenarios.
DETERMINATION
Data Center Exemption
Effective July 1, 2010, House Bill 302 and Senate Bill 130 (2010 Acts of Assembly, Chapters 826 and 784) amended Va. Code § 58.1-609.3 to provide a Retail Sales and Use Tax exemption:
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- 18. Beginning July 1, 2010, and ending June 30, 2020, computer equipment or enabling software purchased or leased for the processing, storage, retrieval, or communication of data, including but not limited to servers, routers, connections, and other enabling hardware, including chillers and backup generators used or to be used in the operation of the equipment exempted in this paragraph, provided that such computer equipment or enabling software is purchased or leased for use in a data center that (i) is located in a Virginia locality, (ii) results in a new capital investment on or after January 1, 2009, of at least $150 million, and (iii) results in the creation on or after July 1, 2009, of at least 50 new jobs associated with the operation or maintenance of the data center provided that such jobs pay at least one and one-half times the prevailing average wage in that locality. The requirement of at least 50 new jobs is reduced to 25 new jobs if the data center is located in a locality that has an unemployment rate for the preceding year of at least 150 percent of the average statewide unemployment rate for such year as determined by the Virginia Economic Development Partnership or is located in an enterprise zone. Prior to claiming such exemption, any qualifying person claiming the exemption must enter into a memorandum of understanding with the Virginia Economic Development Partnership Authority that at a minimum provides the details for determining the amount of capital investment made and the number of new jobs created, the timeline for achieving the capital investment and new job goals, the repayment obligations should those goals not be achieved, and any conditions under which repayment by the qualifying person claiming the exemption may be required. In addition, the exemption shall apply to any, such computer equipment or enabling software purchased or leased to upgrade, supplement, or replace computer equipment or enabling software purchased or leased in the initial investment. The exemption shall not apply to any other computer software otherwise taxable under Chapter 6 of Title 58.1 that is sold or leased separately from the computer equipment, nor shall it apply to general building improvements or other fixtures.
The Department has previously addressed the eligibility requirements and scope of the data center exemption in Public Document 10-121 (June 29, 2010). The application of the exemption to the three scenarios you present is discussed below.
Scenario 1
A single entity makes a data center investment of $150 million, creates 50 jobs and enters into a memorandum of understanding with Virginia Economic Development Partnership.
In order for the purchase or lease of tangible personal property to qualify for the data center exemption, the property must be purchased or leased for use in a qualifying data center. A qualifying data center is a data center (i) that is located in a Virginia locality; (ii) that on or after January 1, 2009 results in a new capital investment of at least $150 million; and (iii) that on or after July 1, 2009, results in the creation of at least 50 new jobs associated with the operation or maintenance of the data center, provided that such jobs pay at least one and one-half times the prevailing average wage in that locality. The jobs requirement is reduced to 25 new jobs if the data center is located in a locality that, has an unemployment rate for the preceding year of at least 150 percent of the average statewide unemployment rate for such year or is located in an enterprise zone.
Prior to claiming the exemption, any qualifying person must enter into a memorandum of understanding with the Virginia Economic Development Partnership Authority ("VEDP") that, at a minimum, provides the details for determining (i) the amount of capital investment made; (ii) the number of new jobs created; (iii) the timeline for achieving the capital investment and new job goals; (iv) the repayment obligations should those goals not be achieved; and (v) any conditions under which repayment by the qualifying person claiming the exemption may be required. Public Document 10-121 held that "[a]ny owner of a qualifying data center who is a party to a memorandum of understanding with the VEDP regarding the data center may exercise the exemption for the purchase or lease of qualifying property„"
In this scenario, assuming that all of the other requirements of the exemption are met, the owner of the data center would qualify to exercise the exemption because it has met the capital investment and job creation requirements and has entered into the required memorandum of understanding with VEDP.
Scenario 2
A single entity makes a data center investment of $150 million, signs agreements with tenants who contractually commit to create 50 jobs and submit verification of job creation through the single entity and the single entity enters into a memorandum of understanding with VEDP.
As in Scenario 1, assuming that all of the other requirements of the exemption are met, the owner of the data center would qualify to exercise the exemption as it has met the capital investment and job creation requirements and has entered into the required memorandum of understanding with VEDP. The statute does not limit the job creation requirement to persons directly employed and paid by the entity that owns the data center. However, the statute does require that the new jobs must be associated with the operation or maintenance of the data center. If allowed under the terms of the memorandum of understanding with VEDP, employees of contractors and tenants who are located at the data center may be considered new jobs associated with the operation and maintenance of the data center. However, only the entity that owns the data center and has entered into the memorandum of understanding with VEDP would qualify for the exemption.
Scenario 3
A number of tenants together create a single entity, like a limited liability company ("LLC"), for the construction and operation of a datacenter and make a data center investment totaling $150 million and sign agreements with tenants who contractually commit to create 50 jobs ,and submit verification of job creation through the LLC and the LLC enters into a memorandum of understanding with VEDP as a single entity.
As in Scenarios 1 and 2, a single entity owns and operates the data center and meets both the capital investment and job creation requirements for the exemption and has entered into the required memorandum of understanding with VEDP. As discussed under Scenario 2, the exemption does not limit the job creation requirement to persons employed and paid directly by the entity that owns the data center. However, the statute does require that the new jobs must be associated with the operation or maintenance of the data center. If allowed under the terms of the memorandum of understanding with VEDP, employees of contractors and tenants who are located at the data center may be considered new jobs associated with the operation and maintenance of the data center. However, only the entire owning the data center and entering into a memorandum of understanding with VEDP would qualify for the exemption. An exemption certificate would be issued only to the LLC as the qualifying entity and would not be issued to any specific tenant, as no specific tenant would be considered an entity that owns the data center and has entered into a memorandum of understanding with VEDP.
CONCLUSION
The Va. Code sections and regulations cited, along with other reference documents, are available on-line in the Tax Policy Library section of TAX's web site, located at www.policylibrary.tax.virginia.gov. If you haves any questions about this determination, you may contact ***** in the Office of Tax Policy, Policy Development Division, at *****.
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- Sincerely,
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Craig M. Burns
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- Tax Commissioner
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PD/1-4888766083
Rulings of the Tax Commissioner