News and Insights

Data Center Incentive Passes in Texas

Tax Development May 28, 2013

The Texas Legislature has approved legislation to create a temporary sales tax exemption intended to attract major data center projects to Texas. The bill now goes to Governor Rick Perry, who has 20 days to decide whether to sign, veto, or allow the bill to become law without his signature.

House Bill 1223 (“H.B. 1223”) by House Ways and Means Committee Chairman Harvey Hilderbran (R-Kerrville) passed Friday after Hilderbran told the House that he was willing to accept two important changes that the Senate made to the bill:

  1. The Senate increased the minimum capital investment required to qualify for the exemption. Under the finally agreed upon version, only projects involving a capital investment of at least $200 million may qualify for a ten-year sales tax exemption, while those having a $250 million capital investment may qualify for a 15-year exemption. Hilderbran had proposed a lower threshold: $150 million for a ten-year exemption and $200 million for a 15-year exemption.
  2. The Senate also defined a qualifying data center to require that the center be used by a single occupant.

If the bill is signed, the sales and use tax exemption will become effective on September 1, 2013 and apply to personal property that is necessary and essential to operate a qualified data center, including electricity; an electrical system; a cooling system; an emergency generator; hardware or a distributed mainframe computer or server; a data storage device; network connectivity equipment; a rack, cabinet, and raised floor system; a peripheral component or system; software; and any other equipment or system necessary to operate qualified property, including a fixture; and a component part of any qualified property.

The exemption specifically does not apply to office equipment or supplies, maintenance or janitorial supplies or equipment, equipment or supplies used primarily in sales activities or transportation activities, property on which the purchaser has received or has a pending application for an enterprise zone refund, personal property not otherwise exempted that becomes an improvement to real property, equipment rented or leased for a year or less, or a taxable service that is performed on property exempted by the bill.

To be eligible for the exemption, the data center owner, operator, or occupant must jointly or independently:

  • Meet the required capital investment requirement, and
  • Create at least 20 full-time permanent jobs that pay at least 120% of the average weekly wage in the county in which the job is located. The jobs must be maintained for five years.

Other important requirements include:

  • The Comptroller of Public Accounts (“Comptroller”) must pre-approve a qualifying data center, owner, operator, or occupant. The Comptroller will issue registration numbers for use in claiming the exemption.
  • The exemption begins on the date the registration number is issued and expires in either 10 or 15 years, depending on the amount of capital investment.
  • No investments made or jobs created prior to September 1, 2013 would count toward the eligibility criteria.
  • Each applicant for the exemption must certify to the Comptroller that it will meet the job creation and investment requirements within a five-year period that begins on the date the Comptroller certifies the applicant’s right to participate.

Further, data centers that have property tax abatement agreements under Tax Code Chapter 313 are not eligible for the sales tax exemption.


Susan Bittick