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Minnesota Issues Revenue Notice on Exemption for Qualified Data Centers

Tax Development Oct 19, 2016

The Minnesota Department of Revenue (“Department”) issued a revenue notice regarding the state’s exemption for qualified data centers, which was amended in 2013 and previously clarified by the Department in 2014. Provided certain requirements are met, the exemption applies to purchases of enterprise information technology equipment and computer software used in a qualified data center or qualified substantially refurbished data center and to electricity consumed in the operation of such centers. “Substantially refurbished” means an existing facility has been rebuilt or modified, including installation of enterprise information technology equipment, environmental control, computer software, energy efficiency improvements, or building improvements. It does not include cosmetic changes such as painting.

To qualify for the exemption, the facility must 1) be used to house enterprise information technology equipment; 2) have uninterruptible power supplies or generator backup power, sophisticated fire prevention systems, and enhanced security; and 3) meet stipulated investment and square-footage thresholds.  

To claim this exemption, the purchaser of the equipment and software must pay the tax and then apply for a refund, once the facility is certified by the Minnesota Department of Employment and Economic Development (DEED). The refund request must be submitted within three and a half years from the time the invoice was issued. The investment and square-footage requirements are set out below:

Square-Footage Criteria

  • The facility must be located on a single parcel or contiguous parcels and must be comprised of one or more buildings with a combined square footage of 25,000 square feet or more.
  • If “substantially refurbished,” at least 25,000 square feet of the facility must have been rebuilt or modified.

Investment Criteria

  • Constructed facilities must have a $30,000,000 investment within a four-year period.
  • Substantially refurbished facilities must have a $50,000,000 investment within a two-year period.

It is important to note that for purposes of determining whether the investment criteria has been met within the investment period, the DEED will only include construction and refurbishment costs incurred after June 30, 2012 and purchases of enterprise IT equipment, software, and software maintenance made after June 30, 2013. However, if a qualified facility met the investment and square-footage criteria under the 2011 law, the exemption will apply to eligible purchases made after June 30, 2012. Further information regarding the exemption can be found in Minnesota Department of Revenue Notice #16-07.