1. (a) Definitions. The following words and terms, when used in this section, shall have the following meanings, unless the context clearly indicates otherwise.

   1. (1) Capital investment--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 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 such property. The term does not include:

      1. (A) property purchased before September 1, 2013;
      2. (B) property purchased by a qualifying owner, qualifying operator, or qualifying occupant from persons or legal entities related to the purchaser by ownership or common control;
      3. (C) property that is leased under an operating lease; or
      4. (D) expenditures for routine and planned maintenance required to maintain regular business operations.
   2. (2) County average weekly wage--The average weekly wage in a county for all jobs during the most recent four quarterly periods for which data is available, as computed by the Texas Workforce Commission, at the time a qualifying owner, qualifying operator, or qualifying occupant creates a job used to qualify under this section.

   3. (3) Data center--At least 100,000 square feet of space in a single building, or portion of a single building, that:

      1. (A) is or will be located in this state;
      2. (B) is or will be specifically constructed or refurbished for use primarily to house servers, related equipment, and support staff for the processing, storage, and distribution of data;
      3. (C) will be used by a single qualifying occupant for the processing, storage, and distribution of data;
      4. (D) will not be used primarily by a telecommunications provider to house tangible personal property that is used to deliver telecommunications services; and
      5. (E) has 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.
   4. (4) Permanent job--An employment position for which an Internal Revenue Service Form W-2 must be issued, that will exist for at least five years after the date the job is created. A permanent job will be considered to exist for at least five years after the date the job is created if during the five-year period any vacancy which occurs is filled within 120 days of the date of vacancy.
   5. (5) Primarily--More than 50% of the time.
   6. (6) Qualifying data center--A facility that the comptroller certifies as meeting each of the requirements in subsection (d) of this section.

   7. (7) Qualifying job--

      1. (A) A new, full-time job created by a qualifying owner, qualifying operator, or qualifying occupant of a qualifying data center that:

         1. (i) is a permanent job;
         2. (ii) is located in the same county in Texas in which the associated qualifying data center is located;
         3. (iii) will provide at least 1,820 hours of employment a year to a single employee;
         4. (iv) pays at least 120% of the county average weekly wage, as defined by paragraph (2) of this subsection, for the county in which the job is located;
         5. (v) is not transferred from one county in Texas to another county in Texas; and
         6. (vi) is not created to replace a qualifying job that was previously held by another employee.

      2. (B) The term includes a new employment position staffed by a third-party employer if the employment position meets the requirements of subparagraph (A) of this paragraph and if there is a written contract between the third-party employer and a qualifying owner, qualifying operator, or qualifying occupant of the associated qualifying data center which:

         1. (i) provides for shared employment responsibilities between the third-party employer and the qualifying owner, qualifying operator, or qualifying occupant; and
         2. (ii) provides that the third-party employment position is permanently assigned to the associated qualifying data center or another location operated by the qualifying owner, qualifying operator, or qualifying occupant within the county where the data center is located for the term of the written contract.
   8. (8) Qualifying operator--A person who controls access to a qualifying data center, regardless of whether that person owns each item of tangible personal property located at the qualifying data center. A qualifying operator may also be the qualifying owner.
   9. (9) Qualifying owner--A person who owns the building in which a qualifying data center is located. A qualifying owner may also be the qualifying operator.

   10. (10) Qualifying occupant--A person who:

       1. (A) contracts with either a qualifying owner or qualifying operator to place, or cause to be placed, tangible personal property at the qualifying data center for use by the occupant. The qualifying occupant may also be the qualifying owner or the qualifying operator of the qualifying data center; and
       2. (B) is the sole occupant of the qualifying data center. A qualifying occupant may provide data storage and processing services, but may not sublease to a third party any real or tangible personal property located within the area of a building designated by the qualifying occupant, qualifying owner, or qualifying operator as part of the qualifying data center. For example, a qualifying occupant may not sell or lease excess servers or server space, including the provision of dedicated servers, at the qualifying data center to third parties. If a single occupant leases 150,000 square feet of space in a building for use as a qualifying data center, that occupant may not use 100,000 square feet for its own qualifying use and sublease the remaining 50,000 square feet to a third party, even if the third party will also use the space as a data center. An occupant may, however, lease 150,000 square feet of space in a building and, during the certification process, formally designate 100,000 square feet or more of the space as the area to be used as its qualifying data center. The occupant could then sublease the space not designated for use as the data center to a third party without causing the data center to lose its certification as a qualifying data center. Tangible personal property purchased for use in the space outside the area designated for use as a data center would not qualify for exemption under this section.

2. (b) Exemption.

   1. (1) Tangible personal property purchased by a qualifying owner, qualifying operator, or qualifying occupant for installation at, incorporation into, or in the case of subparagraph (A) of this paragraph, use in a qualifying data center is exempted from the state sales and use tax imposed by Tax Code, Chapter 151 if the tangible personal property is necessary and essential to the operation of the qualifying data center and is:

      1. (A) electricity. A predominant use study is required to differentiate between taxable and nontaxable use of electricity from a single meter unless the qualifying data center is a stand-alone facility of which the qualifying occupant is the sole inhabitant. For more information regarding predominant use studies, refer to §3.295 of this title (relating to 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 predominant use study and may, in lieu of tax, supply its utility provider with a properly completed Qualifying Data Center Exemption Certificate, Form 01-929. Refer to subsection (g) of this section regarding exemption certificates;
      2. (B) an electrical system;
      3. (C) a cooling system;
      4. (D) an emergency generator;
      5. (E) hardware or a distributed mainframe computer or server;
      6. (F) a data storage device;
      7. (G) network connectivity equipment;
      8. (H) a rack, cabinet, and raised floor system;
      9. (I) a peripheral component or system;
      10. (J) software;
      11. (K) a mechanical, electrical, or plumbing system that is necessary to operate any tangible personal property;
      12. (L) any other item of equipment or system necessary to operate any tangible personal property, including a fixture; or
      13. (M) a component part of any tangible personal property described in this subsection.
   2. (2) The purchase price of qualifying tangible personal property, including building materials, electricity, and other items, jointly procured by a qualifying owner, qualifying operator, or qualifying occupant for installation at, incorporation into, or use in one or more qualifying data centers is to be apportioned among the purchasers for purposes of subsection (h)(2) of this section, concerning liability in the event of revocation.

3. (c) Exclusion from exemption. The exemption in subsection (b) of this section does not apply to:

   1. (1) office equipment or supplies;
   2. (2) maintenance or janitorial supplies or equipment;
   3. (3) equipment or supplies used primarily in sales activities or transportation activities;
   4. (4) tangible personal property on which the purchaser has received or has a pending application for a refund under Tax Code, §151.429 (relating to Tax Refunds for Enterprise Projects);
   5. (5) tangible personal property that is rented or leased for a term of one year or less; or
   6. (6) notwithstanding Tax Code, §151.3111 (relating to Services on Certain Exempted Personal Property), a taxable service that is performed on tangible personal property exempted under this section.

4. (d) Eligibility for certification of a data center. The comptroller may certify an applicant facility as a qualifying data center if the following requirements are met:

   1. (1) The applicants declare on the application for certification that the facility does or will meet all of the requirements for the definition of the term "data center" set out in subsection (a)(3) of this section.

   2. (2) The qualifying owner, qualifying operator, or qualifying occupant, jointly or independently, have agreed to, on or after September 1, 2013:

      1. (A) create at least 20 qualifying jobs on or before the fifth anniversary of the date that the data center is certified by the comptroller as a qualifying data center; and

      2. (B) make a capital investment of at least $200 million in that particular data center over a five-year period beginning on the date the data center is certified by the comptroller as a qualifying data center. For purposes of this subparagraph:

         1. (i) an expenditure can only be counted toward the capital investment requirement if invoiced to the qualifying owner, qualifying operator, or qualifying occupant on or after the date the comptroller certifies the data center; and
         2. (ii) purchases by a related corporate entity on behalf of a qualifying owner, qualifying operator, or qualifying occupant cannot be included in the capital investment calculation.
   3. (3) The applicant facility does not have an agreement under which it receives a limitation on appraised value of property for ad valorem tax purposes under Tax Code, Chapter 313 (relating to the Texas Economic Development Act).

5. (e) Application process.

   1. (1) A facility that is eligible to be certified under subsection (d) of this section as a qualifying data center by the comptroller shall apply for a registration number on the Texas Application for Certification as a Qualifying Data Center, Form AP-223. The application must include:

      1. (A) the name, contact information, and authorized signature for the qualifying occupant and, if applicable, the name, contact information, and authorized signature for the qualifying owner and the qualifying operator who will claim the exemption authorized under this section;
      2. (B) a business proposal summarizing the plan of the qualifying owner, qualifying operator, or qualifying occupant, independently or jointly, to meet the capital investment and jobs creation requirements in subsection (d)(2) of this section; and
      3. (C) a statement confirming that the qualifying owner, qualifying operator, and qualifying occupant, as applicable, agree that the statute of limitation provided in Tax Code, §111.201 on the assessment of tax, penalty, and interest on purchases made tax-free under this section is tolled from the date of certification until the fifth anniversary of that date, or until such time as the comptroller is able to verify that the job creation and capital investment requirements in subsection (d)(2) of this section have been met, whichever is later.
   2. (2) Information provided on and with the application under this subsection is confidential under Tax Code, §151.027 (relating to the Confidentiality of Tax Information).
   3. (3) After certifying the qualifying data center, the comptroller will issue a separate registration number to the qualifying owner, the qualifying operator, and the qualifying occupant, as applicable, based on the registration number of the qualifying data center.

6. (f) Temporary state sales and use tax exemption dates. The state sales and use tax exemption under this section is temporary. The exemption applies to qualified purchases made during the exemption period.

   1. (1) A qualifying data center's exemption period begins on the date the data center is certified by the comptroller.

   2. (2) A qualifying data center's exemption period ends 10 or 15 years from the certification date, depending on the amount of capital investment made.

      1. (A) A qualifying data center's sales tax exemption expires 10 years from the date of certification by the comptroller if the qualifying owner, qualifying operator, or qualifying occupant, independently or jointly, makes a capital investment of at least $200 million, but less than $250 million, within the first five years after certification.
      2. (B) A qualifying data center's sales tax exemption expires 15 years from the date of certification by the comptroller if the qualifying owner, qualifying operator, or qualifying occupant, independently or jointly, makes a capital investment of at least $250 million within the first five years after certification.
   3. (3) The comptroller will audit each qualifying data center at its five year anniversary to verify the amount of capital investment made in the qualifying data center and to verify that the jobs creation requirement has been met.
   4. (4) Once all jobs are created, as required under subsection (d)(2)(A) of this section, the qualifying owner, qualifying operator, or qualifying occupant, either singly or jointly, must timely notify the comptroller by providing a properly completed Qualifying Data Center Job Creation Report, Form 01-930.

7. (g) Exemption certificate. Each person who is eligible to claim an exemption authorized by this section must hold a registration number issued by the comptroller.

   1. (1) To claim a state sales tax exemption under this section for the purchase of tangible personal property, a qualifying owner, qualifying operator, or qualifying occupant must provide to the seller of a taxable item a Qualifying Data Center Exemption Certificate, Form 01-929. The exemption certificate does not apply to local sales and use tax. Refer to subsection (k) of this section for more information regarding local sales and use tax.

   2. (2) To claim the exemption, a qualifying owner, qualifying operator, or qualifying occupant must properly complete all required information on the exemption certificate, including:

      1. (A) the data center registration number;
      2. (B) the registration number of the qualifying owner, qualifying operator, or qualifying occupant, as applicable;
      3. (C) the address of the qualifying owner, qualifying operator, or qualifying occupant, as applicable;
      4. (D) a description of the tangible personal property to be purchased;
      5. (E) the signature of the purchaser; and
      6. (F) the date of the purchase.
   3. (3) The properly completed qualifying data center exemption certificate is the retailer's documentation that it made a tax-exempt sale in good faith. The retailer is required to keep the exemption certificate 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-exempt sales to the purchaser's exemption certificate. This may be accomplished by the retailer entering the purchaser's registration number on each invoice.
   4. (4) A retailer is not required to accept a qualifying data center exemption certificate. If a retailer chooses not to accept an exemption certificate issued by a purchaser, the purchaser may instead request a refund of the tax paid from the comptroller. Retailers shall provide an Assignment of Right to Refund, Form 00-985, if a state sales tax exemption is not provided to a qualifying owner, qualifying operator, or qualifying occupant when qualifying purchases of tangible personal property are made.

8. (h) Revocation. By filing an application for certification of a qualifying data center, the qualifying owner, qualifying operator, and qualifying occupant, as applicable, commit to making a capital investment of at least $200 million in the data center during its first five years, creating at least 20 permanent, full-time, qualifying jobs, and maintaining those jobs for at least five years. In addition, these entities commit to ensuring that the facility meets the definition of a "data center" in subsection (a)(3) of this section and will be occupied by a single qualifying occupant over the life of the qualifying data center's sales tax exemption. For more information, refer to subsection (d) of this section.

   1. (1) Failure to meet one or more of the certification requirements described in subsection (d) of this section will result in termination of the data center's certification and the revocation of all related qualifying owner, qualifying operator, and qualifying occupant exemption registration numbers.
   2. (2) Each entity that has a registration number revoked will be liable for state sales or use taxes, including penalty and interest from the date of purchase, on all items purchased tax-free under this section, back to the original date of certification of the data center as a qualifying data center.
   3. (3) If a formal waiver of the statute of limitations under Tax Code, §111.203 is deemed necessary to insure against a loss of revenue to the state in the event that a data center's certification is revoked, by allowing the comptroller to verify, prior to the expiration of the statute of limitations on assessment, that each of the requirements in subsection (d) of this section has been met, then the failure to execute a timely statutory waiver will also result in the termination of the data center's certification and the revocation of all related registration numbers.

9. (i) Documentation and record retention.

   1. (1) In accordance with Tax Code, §111.0041 (relating to Records; Burden to Produce and Substantiate Claims) and §151.025 (relating to Records Required to be Kept), all qualifying occupants, qualifying owners, and qualifying operators of a qualifying data center must keep complete records to document any and all tax-exempt purchases made under the qualifying data center exemption, and to confirm payment of the local sales and use tax on such purchases. See §3.281 of this title (relating to Records Required; Information Required) for additional guidance.
   2. (2) In addition, each qualifying owner, qualifying operator, and qualifying occupant of a qualifying data center must keep complete records to document the capital investment made in the qualifying data center, the creation of 20 qualifying jobs, and the retention of those jobs for a period of at least five years. These records must be retained until the data center's certification expires. For example, a qualifying owner, qualifying operator, or qualifying occupant should keep comprehensive records of capital investment expenditures, such as contracts, invoices, and sales receipts, and employment records regarding job creation, including associated third-party employer positions.
   3. (3) In the event the comptroller revokes the certification of a qualifying data center, the records of all qualifying owners, qualifying operators, and qualifying occupants must be retained until all assessments have been resolved.
10. (j) Successor Liability. A purchaser of a qualifying owner, qualifying operator, or qualifying occupant's business or stock of goods in a qualifying data center is subject to Tax Code, §111.020.
11. (k) Local tax. The state sales and use tax exemption for qualifying owners, qualifying operators, or qualifying occupant of a qualifying data center does not apply to local sales and use tax. Local sales and use tax must be paid on the purchase of any tangible personal property that qualifies for exemption from state sales and use tax under this section.
12. (l) An entity that qualifies for state sales and use tax exemption under this section is not eligible to receive a limitation on appraised value of property for ad valorem tax purposes under Tax Code, Chapter 313 (relating to the Texas Economic Development Act).

Source Note:The provisions of this §3.335 adopted to be effective February 26, 2014, 39 TexReg 1157.