87R6448 SMT-D

By: Capriglione H.B. No. 3236

A BILL TO BE ENTITLED

AN ACT

relating to the temporary exemption of certain tangible personal property related to certain colocation data centers 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 COLOCATION DATA CENTERS; TEMPORARY EXEMPTION. (a) In this section:

(1) "Colocation data center" means all or part of a new or redeveloped facility that:

(A) is located in this state;

(B) is composed of space in a building or a series of buildings and related improvements located or to be located on one or more parcels of land;

(C) is specifically constructed or refurbished, repaired, restored, remodeled, or otherwise modified and actually used primarily to house servers and related equipment and support staff for the processing, storage, and distribution of data;

(D) if redeveloped, has not been previously used for the purpose specified by Paragraph (C);

(E) is designed for use by one or more tenants for the processing, storage, and distribution of data;

(F) has an uninterruptible power source or generator backup power and cooling systems, towers, and other temperature control infrastructure; and

(G) does not generate electricity for resale or for use outside the facility.

(2) "Operator" means a person who controls access to a colocation data center, regardless of whether that person owns each item of tangible personal property located at the colocation data center.

(3) "Qualifying tenant" means a tenant who is certified by the comptroller under Subsection (d).

(4) "Tenant" means a person who:

(A) contracts with an operator, for a period of at least five years:

(i) for at least one megawatt of critical IT load capacity per month beginning not later than the first anniversary of the date the operator and tenant enter into the contract; and

(ii) to place, or cause to be placed, and use tangible personal property at the colocation data center; or

(B) is the operator and who places or causes to be placed and uses tangible personal property at the colocation data center.

(b) Except as otherwise provided by this section, tangible personal property that is necessary and essential to the operation of a colocation data center is exempted from the taxes imposed by this chapter if the tangible personal property is purchased by a qualifying tenant for installation at, incorporation into, or in the case of electricity, use in a colocation data center, and the tangible personal property is:

(1) electricity;

(2) an electrical system;

(3) a cooling system;

(4) an emergency generator;

(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) A tenant may be certified by the comptroller as a qualifying tenant for purposes of this section if:

(1) the tenant employs at least 500 people full time in this state; and

(2) on or after January 1, 2021, the tenant:

(A) contracts with an operator or tenant, as applicable, to lease space in a facility in which the tenant will locate a colocation data center; and

(B) makes or agrees to make a capital investment of at least $15 million in the facility in which the colocation data center will be located over a three-year period beginning on the date the tenant is certified by the comptroller as a qualifying tenant.

(e) A tenant that is eligible under Subsection (d) to be certified by the comptroller as a qualifying tenant shall apply to the comptroller for certification and for the issuance of a registration number by the comptroller. The application must be made on a form prescribed by the comptroller and must include the information required by the comptroller. The application must include the tenant's name and contact information and the address of the colocation data center. The application form must include a section for the tenant to certify that the tenant will meet the capital investment required by Subsection (d)(2)(B) within the period prescribed by that paragraph.

(f) The comptroller shall:

(1) act on an application submitted under Subsection (e) not later than the 60th day after the date the comptroller receives the application from the applicant; and

(2) issue the certification and registration number to the applicant not later than the 14th day after the date the comptroller approves the application.

(g) The exemption provided by this section begins as to a qualifying tenant on the date the comptroller issues a registration number to the qualifying tenant under Subsection (f) and expires:

(1) on the 10th anniversary of that date, if the qualifying tenant makes a capital investment of at least $15 million but less than $50 million as provided by Subsection (d)(2)(B); or

(2) on the 15th anniversary of that date, if the qualifying tenant makes a capital investment of $50 million or more as provided by Subsection (d)(2)(B).

(h) Each qualifying tenant 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 tenant to the seller of tangible personal property eligible for the exemption.

(i) The comptroller shall revoke a registration number issued to a tenant if the comptroller determines that the tenant does not meet the requirements prescribed by Subsection (d). Each tenant who has the tenant's registration number revoked by the comptroller is liable for taxes, including penalties and interest from the date of purchase, imposed under this chapter on purchases for which the tenant claimed an exemption under this section, regardless of whether the purchase occurred before the date the registration number was revoked.

(j) The comptroller shall adopt rules consistent with and necessary to implement this section, including rules relating to:

(1) a colocation data center, operator, and qualifying tenant;

(2) the issuance and revocation of a registration number required under this section; and

(3) reporting and other procedures necessary to ensure that a colocation data center, operator, and qualifying tenant comply with this section and that the qualifying tenant remains entitled to the exemption authorized by this section.

(k) The exemption provided under this section does not apply to the taxes imposed under Chapter 321, 322, or 323.

(l) Information submitted to the comptroller in an application under Subsection (e) is confidential and excepted from the requirements of Section 552.021, Government Code.

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 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 in the processing, storage, and distribution of data;

(9-a) use directly in the processing, storage, and distribution of data by a tenant of a colocation data center who is certified by the comptroller as a qualifying tenant under Section 151.3596;

(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. Section 151.3596, Tax Code, as added by this Act, applies only to a qualifying tenant of a colocation data center who becomes a qualifying tenant on or after the effective date of this Act.

SECTION 5. This Act takes effect September 1, 2021.