84(R) - 2015
House Ways & Means
House Ways & Means
Relating to the temporary exemption of certain tangible personal property related to large data center projects from the sales and use tax.
A fiscal note dated April 11, 2015 anticipates no significant fiscal implication to the State for several biennia. It adds that the bill could result in loss of sales tax revenue beginning 15 years after the date a data center is certified as a large data center project.
There would be a reduction in sales and use tax revenue to one or more units of local government,
but the extent of the reduction cannot be determined.
House Bill 2712 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 large data center projects.
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 large data center project if the property is purchased for installation at, incorporation into, or in the case of electricity, use in a qualifying large data center project by a qualifying owner, qualifying operator, or qualifying occupant. The bill also provide a list of property that would not qualify for the exemption.
A large data center project would have to be certified by the comptroller. To be certified, a single qualifying occupant would have to contract with a qualifying owner or operator to lease space in which the qualifying occupant would locate a large data center project and the occupant would occupy a space not previously used as a data center.
Independently or together the qualifying owner, operator or occupant would have to create at least 40 qualifying jobs in the county in which the large data center is located, not including jobs moved from one county to another, and on or after May 1, 2015, would make or agree to make a capital investment of at least $500 million,not included capital investment to replace personal property previously placed in service in that project over a five-year period, and would agree to contract for at least 20 megawatts of transmission capacity for operation of the large data center project.
Large data center projects would have to apply to the comptroller. The exemption would begin on the date they become certified by the comptroller and would expire on the 20th anniversary of that date. 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 large data center project would be qualified as a project located in Texas and composed of one or more buildings comprising at least 250,000 square feet of space located or to be located on a single parcel of land or on contiguous parcels of land that are commonly owned or owned by affiliation with the qualifying operator. It would have to be specifically constructed or refurbished and actually used primarily to house servers and related equipment, used by a single qualifying occupant, 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 five years. A qualifying jobs would mean a full-time, permanent job paying at least 120 percent of the county average weekly wage (as defined in the bill) in the county where the project is to be located.
Vote Recommendation Notes
No amendments have been introduced on the House floor and no changes have been made to the bill in Senate committee. We continue to oppose it.
The second chamber sponsor is Senator Kelly Hancock.
First chamber analysis below:
House Bill 2712 would give a temporary, 20-year exemption from the sales and use tax to certain large data centers that qualify. Requirements to be certified as a qualifying large data center would include the creation of certain jobs as well as a capital investment of at least $500 million.
According to the statement of purpose many states are currently providing economic incentives to attract large data center projects, Texas is well-positioned to attract large data center projects because of its strong infrastructure, major population centers, educated workforce, and favorable construction costs and permitting processes and the bill seeks to make Texas a leader in this segment of the technology industry.
Data centers, especially large ones, 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 2712, like any legislation that grants tax favors to some, can carry unseen, unintended consequences. We oppose House Bill 2712.