84(R) - 2015
House Ways & Means
House Ways & Means
Relating to the temporary exemption of certain tangible personal property related to a data center from the state sales and use tax.
A fiscal note dated April 20, 2015 anticipates a negative two-year net impact to General Revenue Related Funds from CSHB 2096 of $22,200,000 through the biennium ending August 31, 2017.
House Bill 2096 would amend Subchapter H, Chapter 151 of the Tax Code related to sales and use tax exemption to provide for a temporary exemption for certain property used in certain multi-user data centers.
The bill would exempt from the sales and use tax certain tangible personal property that is necessary and essential to the operation of a qualifying multi-user data center if the property is purchased for installation at, incorporation into, or in the case of electricity, use in a qualifying multi-user data center by a qualifying owner, qualifying operator, or qualifying occupant. The bill also provides a list of property that would not qualify for the exemption.
A multi-user data center would have to be certified by the comptroller. To be certified, the bill would require that, independently or together, the qualifying owner, operator or occupant create at least 5 qualifying jobs in the county in which the multi-user data center is located, not including jobs moved from one county to another, and on or after September 1, 2015, that they would make or agree to make a capital investment of at least $100 million in that particular data center over a five-year period.
Multi-user data centers would have to apply to the comptroller. The exemption would begin on the date they become certified by the comptroller and would expire after 10 years if the capital investment is at least $100 million but less than $150 million, and after 15 years if the capital investment is of at least $150 million. The comptroller would be able to revoke a certification if requirements were not met, and in that case, the data center would be liable for taxes, including penalty and interest from the date of purchase on which the exemption was claimed.
A multi-user data center would not qualify for the exemption under this bill if it is subject to an agreement limiting the appraised value of the data center's property.
A multi-user data center would be qualified as a center located in Texas and composed of a building or a series of buildings and related improvements located on a parcel of land or on parcels of land that are in close proximity to each other. It would have to be specifically constructed, refurbished, repaired, restored, remodeled, or otherwise modified and actually used primarily to house servers and related equipment, would be designed for use by one or more qualifying occupants, and not by a telecommunications provider to place tangible personal property used to deliver telecommunications services. It would need to have an uninterruptible power source, a backup generator, a fire suppression and prevention system, and physical security that includes restricted access, video surveillance, and electronic systems.
Permanent job would mean an employment position that would exist for at least three years. A qualifying job would mean a full-time, permanent job paying at least the county average weekly wage (as defined in the bill) in the county where the center is to be located.
Qualifying occupant would mean a person who contracts with a qualifying owner or operator for at least 1,000 kilowatts of critical IT load capacity per month for a period of at least two years to place, or cause to be placed, and to use tangible personal property at the qualifying multi-user data center.
House Bill 2096 would amend Chapter 321 of the Tax Code regarding the municipal sales and use tax to provide that the governing body of a municipality with a population of 35,000 or less could by ordinance provide that the exemption also applies to the municipal sales and use tax.
Vote Recommendation Notes
House Bill 2096 would give a temporary exemption (of 10 or 15 years, depending on the capital investment made by data centers) from the sales and use tax to certain multi-user data centers that qualify. Requirements to be certified as a qualifying multi-user data center would include the creation of certain jobs as well as a capital investment of at least $100 million.
According to the statement of purpose, recent legislation authorized a state sales tax exemption for data centers of a certain size located in Texas, but omits multi-user data centers, despite many other states currently providing significant sales tax exemptions for multi-user data centers.The purpose of the bill is to attract the multi-user data center market, which could result in job creation and increased tax revenue.
Data centers do carry a large part of the burden of the sales tax because their initial and continual investment in tangible personal property necessary to the daily operation of their business is tremendous. This is why initially, it might appear like a fair and appropriate way to bring relief to businesses.
The problem remains that this tax exemption would apply to one industry among many others that would still be required to pay the tax. The role of government is not and should not be to decide who should and should not pay a tax that is levied on everyone or mostly everyone else. A low, broad-based tax system is the best economic incentive for all businesses. Unfortunately, the piling up of exemptions here and there usually makes it difficult to reduce the rate of a tax for everyone as the burden of paying the tax is shifted from all to some.
While the well-intentioned purpose is what we usually see, House Bill 2096, like any legislation that grants tax favors to some, can carry unseen, unintended consequences. We oppose House Bill 2096.