On January 8, 2025, the California State Senate introduced Senate Bill 58 (SB-58), which contemplates a partial exemption from California sales and use tax (SUT) with respect to gross receipts from the sale, storage, use, installation, assembly, repair, maintenance, or other consumption of data center equipment at a certified data center facility. SB-58 may be acted upon by the California State Senate after February 8, 2025, and is subject to changes afforded by the legislative process.
What Is the Benefit?
A partial exemption of the statewide SUT rate (currently 7.25%) would impose a maximum 2% SUT rate for a period of up to 20 years but not later than December 31, 2045, for qualified data center equipment. SB-58 does not apply to local SUT, which can be between 0.10 and 1.50%, depending on the jurisdiction.
Who Is Eligible?
SB-58 defines a data center facility as follows:
- Is located at one or more physical locations on contiguous or noncontiguous parcels that shall not be located in more than one county in this state.
- Uses more than 50% of the facility to house servers and related data center equipment, software, and support staff for the processing, storage, and distribution of data.
- Has uninterruptible power sources, a sophisticated fire suppression and prevention system, and enhanced physical security that includes restricted access, video surveillance, and electronic systems.
- Has backup power.
- Uses modular data centers or preassembled components, including components used in the manufacturing of modular data centers.
- Uses associated telecommunications and storage systems.
- Has network or connection between the buildings or physical locations, as applicable.
What Are the Required Commitments?
For a data center facility to be certified, it must meet the following criteria and commitments:
- The data center facility commits to achieving, and subsequently achieves by no later than the date five years after the certification effective date, the following:
- Create a minimum of at least 20 qualifying jobs in the county in which the data center facility is located, but not including jobs moved from one county in this state to another county in this state.
- Make an investment, on or after January 1, 2025, of at least $200 million.
- In the year the data center facility is placed in service, at least 70% of the energy consumed by the qualifying data center will be carbon-free energy. For each subsequent year, the annual percentage of carbon-free energy consumed by the data center will meet or exceed specified percentages.
- For the duration of the qualification period, at least 50% of the energy supply to operate the data center facility is provided from electricity or energy that can be used on site without passing through a utility-owned meter.
- For the duration of the qualification period, the data center facility must use recycled water cooling systems and waterless landscaping. If water for landscaping is required, the water must be generated on site using renewable-powered atmospheric water generation equipment.
- For the duration of the qualification period, the data center facility shall not use power generation systems for backup power redundancy that use diesel fuel.
- The data center facility must be placed in service on or after January 1, 2025.
Do Tenants Qualify?
SB-58 allows tenants to qualify as long as they use or occupy all or part of the certified data center facility for a period of two or more years. Notice must be provided by the qualifying owner or qualifying operator with any information as may be required by the Governor’s Office of Business and Economic Development (GO-Biz) to confirm the qualifying tenant’s qualification status.
Whom Do I Call for Help When Applying?
For more information, please reach out to the Ryan Data Center team and its experts.
TECHNICAL INFORMATION CONTACTS:
Michael Falleroni
Principal
Ryan
412.889.6434
michael.falleroni@ryan.com
Matt Lowell
Principal
Ryan
321.251.2924
matt.lowell@ryan.com
Austin Arnold
Manager
Ryan
380.710.9686
austin.arnold@ryan.com
Ryan Data Center Team
datacenters@ryan.com
The material presented in this communication is intended to provide general information only and should solely be seen as broad guidance and not directed to the particular facts or circumstances of any individual who may read this publication. No liability is accepted for acts or omissions taken in reliance upon the content of this piece. Before taking (or not taking) any action, readers should seek professional advice specific to their situation from Ryan, LLC or other tax professionals. For additional information about this topic, please contact us at info@ryan.com.