By: Anderson (Senate Sponsor - Parker) H.B. No. 3104
(In the Senate - Received from the House May 8, 2023;
May 9, 2023, read first time and referred to Committee on Finance;
May 15, 2023, reported favorably by the following vote: Yeas 17,
Nays 0; May 15, 2023, sent to printer.)
Click here to see the committee vote
A BILL TO BE ENTITLED
AN ACT
relating to the temporary exemption of certain tangible personal
property related to certain connected data center projects from
sales and use taxes.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
SECTION 1. Subchapter H, Chapter 151, Tax Code, is amended
by adding Section 151.3596 to read as follows:
Sec. 151.3596. PROPERTY USED IN CERTAIN CONNECTED DATA
CENTER PROJECTS; TEMPORARY EXEMPTION. (a) In this section:
(1) "Affiliated group" has the meaning assigned by
Section 171.0001.
(2) "Connected data center project" means a project
that:
(A) is located in this state;
(B) is composed of one or more buildings:
(i) comprising at least 250,000 square feet
of space;
(ii) located or to be located on contiguous
or noncontiguous parcels of land that are commonly owned, owned by
affiliation with the qualifying operator, or leased by a common
qualifying operator; and
(iii) connected to each other:
(a) by fiber and associated equipment
required for operating a fiber transmission network between data
center buildings and upstream Internet peering points for the sole
use of the qualifying occupant; and
(b) for the purpose of providing
redundancy and resiliency for the data center services provided in
each building;
(C) is specifically constructed or refurbished
and primarily used to house servers and related equipment and
support staff for the processing, storage, and distribution of
data;
(D) is used by a single qualifying occupant for
the processing, storage, and distribution of data;
(E) is not used primarily by a telecommunications
provider to place tangible personal property used to deliver
telecommunications services; and
(F) has an uninterruptible power source, backup
electricity generation system, fire suppression and prevention
system, and physical security that includes restricted access,
video surveillance, and electronic systems.
(3) "County average weekly wage" means 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 connected data center
project creates a job used to qualify under this section. If the
connected data center project is located in more than one county,
the county average weekly wage for each county in which the project
is located may be calculated by averaging the county average weekly
wages of all counties in which the project is located.
(4) "Permanent job" means an employment position that
will exist for at least five years after the date the job is
created.
(5) "Qualifying connected data center project" means a
connected data center project that meets the qualifications
prescribed by Subsection (d).
(6) "Qualifying job" means 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. The term includes a new
employment position staffed by a third-party employer if a written
contract exists between the third-party employer and a qualifying
owner, qualifying operator, or qualifying occupant that provides
that the employment position is permanently assigned to an
associated qualifying connected data center project. The term does
not include a job that is moved from one county in this state to
another county in this state.
(7) "Qualifying occupant" means a person who contracts
with a qualifying owner or qualifying operator to place, or cause to
be placed, and to use tangible personal property at the qualifying
connected data center project or, in the case of a qualifying
occupant who is also the qualifying owner and the qualifying
operator, who places or causes to be placed and uses tangible
personal property at the qualifying connected data center project.
The term includes a member of the person's affiliated group.
(8) "Qualifying operator" means a person who controls
access to a qualifying connected data center project, regardless of
whether that person owns each item of tangible personal property
located at the qualifying connected data center project. The term
includes a member of the person's affiliated group. A qualifying
operator may also be the qualifying owner.
(9) "Qualifying owner" means a person who owns one or
more buildings in which a qualifying connected data center project
is located. The term includes a member of the person's affiliated
group. A qualifying owner may also be the qualifying operator.
(b) Except as otherwise provided by this section, tangible
personal property that is necessary and essential to the operation
of a qualifying connected data center project is exempted from the
taxes imposed by this chapter if the tangible personal property is
purchased for installation at, incorporation into, or in the case
of electricity, use in a qualifying connected data center project
by a qualifying owner, qualifying operator, or qualifying occupant,
and the tangible personal property is:
(1) electricity;
(2) an electrical system;
(3) a cooling system;
(4) a backup electricity generation system;
(5) hardware or a distributed mainframe computer or
server;
(6) a data storage device;
(7) network connectivity equipment;
(8) a rack, cabinet, and raised floor system;
(9) a peripheral component or system;
(10) software;
(11) a mechanical, electrical, or plumbing system that
is necessary to operate any tangible personal property described by
Subdivisions (2)-(10);
(12) any other item of equipment or system necessary
to operate any tangible personal property described by Subdivisions
(2)-(11), including a fixture; and
(13) a component part of any tangible personal
property described by Subdivisions (2)-(10).
(c) The exemption provided by this section does not apply
to:
(1) office equipment or supplies;
(2) maintenance or janitorial supplies or equipment;
(3) equipment or supplies used primarily in sales
activities or transportation activities;
(4) tangible personal property on which the purchaser
has received or has a pending application for a refund under Section
151.429;
(5) tangible personal property not otherwise exempted
under Subsection (b) that is incorporated into real estate or into
an improvement of real estate;
(6) tangible personal property that is rented or
leased for a term of one year or less; or
(7) notwithstanding Section 151.3111, a taxable
service that is performed on tangible personal property exempted
under this section.
(d) Subject to Subsection (j), a connected data center
project may be certified by the comptroller as a qualifying
connected data center project for purposes of this section if, on or
after September 1, 2023:
(1) a single qualifying occupant:
(A) contracts with a qualifying owner or
qualifying operator to lease space in which the qualifying occupant
will locate a connected data center project; or
(B) occupies a space that was not previously used
as a data center in which the qualifying occupant will locate a
connected data center project, in the case of a qualifying occupant
who is also the qualifying operator and the qualifying owner; and
(2) the qualifying owner, qualifying operator, or
qualifying occupant, jointly or independently:
(A) creates at least 40 qualifying jobs in the
county or counties in which the connected data center project is
located;
(B) makes or agrees to make a capital investment,
on or after September 1, 2023, of at least $500 million in that
particular connected data center project, the amount of which may
not include a capital investment to replace personal property
previously placed in service in that connected data center project,
over a five-year period beginning on the earlier of:
(i) the date the connected data center
project submits the application described by Subsection (e); or
(ii) the date the connected data center
project is certified by the comptroller as a qualifying connected
data center project; and
(C) agrees to contract for at least 20 megawatts
of transmission capacity for the operation of the connected data
center project.
(e) A connected data center project that is eligible under
Subsection (d) to be certified by the comptroller as a qualifying
connected data center project shall apply to the comptroller for
certification as a qualifying connected data center project and for
the issuance of a registration number or numbers by the
comptroller. The application must be made on a form prescribed by
the comptroller and include the information required by the
comptroller. The application must include the name and contact
information for the qualifying occupant, and, if applicable, the
name and contact information for the qualifying owner and the
qualifying operator who will claim the exemption authorized under
this section. The application form must include a section for the
applicant to certify that the capital investment required by
Subsection (d)(2)(B) will be met independently or jointly by the
qualifying occupant, qualifying owner, or qualifying operator
within the time period prescribed by Subsection (d)(2)(B).
(f) The exemption provided by this section begins on the
date the connected data center project is certified by the
comptroller as a qualifying connected data center project and
expires on the 20th anniversary of that date, if the qualifying
occupant, qualifying owner, or qualifying operator, independently
or jointly makes a capital investment of $500 million or more as
provided by Subsection (d)(2)(B).
(g) Each person who is eligible to claim an exemption
authorized by this section must hold a registration number issued
by the comptroller. The registration number must be stated on the
exemption certificate provided by the purchaser to the seller of
tangible personal property eligible for the exemption.
(h) The comptroller shall revoke all registration numbers
issued in connection with a qualifying connected data center
project that the comptroller determines does not meet the
requirements prescribed by Subsection (d). Each person who has the
person's registration number revoked by the comptroller is liable
for taxes, including penalty and interest from the date of
purchase, imposed under this chapter on purchases for which the
person claimed an exemption under this section, regardless of
whether the purchase occurred before the date the registration
number was revoked.
(i) The comptroller shall adopt rules consistent with and
necessary to implement this section, including rules relating to:
(1) a qualifying connected data center project,
qualifying owner, qualifying operator, and qualifying occupant;
(2) issuance and revocation of a registration number
required under this section; and
(3) reporting and other procedures necessary to ensure
that a qualifying connected data center project, qualifying owner,
qualifying operator, and qualifying occupant comply with this
section and remain entitled to the exemption authorized by this
section.
(j) A connected data center project is not eligible to
receive an exemption under this section if the connected data
center project is subject to an agreement limiting the appraised
value of the connected data center's property under former
Subchapter B or C, Chapter 313.
SECTION 2. Section 151.317(a), Tax Code, is amended to read
as follows:
(a) Subject to Sections 151.1551, 151.359, [and] 151.3595,
and 151.3596 and Subsection (d) of this section, gas and
electricity are exempted from the taxes imposed by this chapter
when sold for:
(1) residential use;
(2) use in powering equipment exempt under Section
151.318 or 151.3185 by a person processing tangible personal
property for sale as tangible personal property, other than
preparation or storage of prepared food described by Section
151.314(c-2);
(3) use in lighting, cooling, and heating in the
manufacturing area during the actual manufacturing or processing of
tangible personal property for sale as tangible personal property,
other than preparation or storage of prepared food described by
Section 151.314(c-2);
(4) use directly in exploring for, producing, or
transporting, a material extracted from the earth;
(5) use in agriculture, including dairy or poultry
operations and pumping for farm or ranch irrigation;
(6) use directly in electrical processes, such as
electroplating, electrolysis, and cathodic protection;
(7) use directly in the off-wing processing, overhaul,
or repair of a jet turbine engine or its parts for a certificated or
licensed carrier of persons or property;
(8) use directly in providing, under contracts with or
on behalf of the United States government or foreign governments,
defense or national security-related electronics, classified
intelligence data processing and handling systems, or
defense-related platform modifications or upgrades;
(9) use directly by a data center, [or] large data
center project, or connected data center project that is certified
by the comptroller as a qualifying data center under Section
151.359, [or] a qualifying large data center project under Section
151.3595, or a qualifying connected data center project under
Section 151.3596 in the processing, storage, and distribution of
data;
(10) a direct or indirect use, consumption, or loss of
electricity by an electric utility engaged in the purchase of
electricity for resale; or
(11) use in timber operations, including pumping for
irrigation of timberland.
SECTION 3. The change in law made by this Act does not
affect tax liability accruing before the effective date of this
Act. That liability continues in effect as if this Act had not been
enacted, and the former law is continued in effect for the
collection of taxes due and for civil and criminal enforcement of
the liability for those taxes.
SECTION 4. This Act takes effect September 1, 2023.
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