Virginia's Sales and Use Tax Exemption Program for Data Centers

DALLAS, April 16, 2013 /PRNewswire/ -- In a move designed to lure data centers to Virginia, effective July 1, 2010, the Virginia Legislature amended Virginia Code Section 58.1-609.3. This amendment provides retail sales and use tax exemption for data centers that meet various criteria of capital investment, new jobs, and wage rate. The exemption applies to all purchases of qualifying computer equipment necessary and essential to the operation of a qualifying data center. The exemption began July 1, 2010 and expires June 30, 2020, unless any further action is taken by the Virginia Legislature to extend the exemption program.

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Program Requirements and Taxpayer Benefits

The sales and use tax exemption available under Virginia Code Section 58.1-609.3 (18) runs July 1, 2010 through June 30, 2020 and applies to purchases of computer equipment, enabling software, or enabling hardware for a qualifying data center, which:

1. Is located in a Virginia locality, defined currently as only a Virginia city or county;
2. Results in a new capital investment on or after January 1, 2009 of at least $150 million in the Virginia locality; and
3. 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% of the average statewide unemployment rate or is located in an enterprise zone.

The definition of computer equipment, enabling software, and enabling hardware is clarified in the statute with a list of common items, such as servers, routers, and connections, but also includes those not generally thought of as "enabling hardware," such as chillers and backup generators. Further, according to the Virginia Department of Taxation Ruling of the Tax Commissioner 10-121, the purchase of mainframes, network infrastructure, cabling, switches, wiring, exhaust fans, fuel storage tanks, and other such hardware is exempt from sales and use tax to the extent such items are used in the operation of the qualifying data center.

In order to claim the exemption available to a qualifying data center, the owner, tenant, or operator of the data center must first enter into a Memorandum of Understanding (MOU) with the Virginia Economic Development Partnership (VEDP). The Virginia Legislature amended Section 58.1-609.3 (18) on April 4, 2012, effectively enacting in statute the Ruling of the Tax Commissioner from October 27, 2011, allowing tenants of data centers to be included as parties to the MOU. Consequently, data center owners, operators, and tenants may now cumulatively count their capital investment and new job creation toward meeting the statutory requirements.

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