Texas Data Center Tax Incentives on the Horizon

States have been aggressive with tax exemptions, and Texas doesn't plan on being left behind; House Bill 1223 is close to becoming a law, offering very attractive incentives for projects over $200 million

Major data center tax incentives are expected to become law in Texas, and the state's data center operators are excited about it. The Lonestar state is already a central data center and hosting hub, but the tax breaks are designed to bring in new technology firms and capital investment. In recent years, other states have begun offering aggressive tax cuts, and the new incentives will help Texas defend its prominent position.

The Texas Legislature has approved legislation to create a temporary sales tax exemption intended to attract major data center projects to Texas.This exemption will apply to data centers with single occupants only. It now comes down to Governor Rick Perry, who has 20 days to sign, veto, or allow the bill to become a law without his signature.

"We are a very competitive state for large data centers in terms of our economy, geography and climate, but we haven't been in terms of our tax code," said Rep. Harvey Hilderbran, R-Kerrville, who authored House Bill 1223 creating the incentives.

Data Center Providers Express Their Support

Stream Data Centers, which has facilities in Dallas, Houston and San Antonio, and Companies like CAPSTAR, who own a large property in the Dallas market, are notably excited.

"Large data center users consider these economic incentives as part of their total cost analysis, and Texas was being priced out of the market," said John Patterson, who works with CAPSTAR Real Estate Advisors and has a partnership in the 3000 Skyline Dallas data center building. "These tax incentives benefit the technology firms, but they also have a huge economic impact on the state and the communities where they are located."

If signed, effective September 1, 2013, the sales and use tax exemption applies 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.

Senate Adds its 2 cents

House Bill 1223 passed last Friday, and House Ways and Means Committee Chairman Harvey Hilderbran told the House he was willing to accept two important changes that the Senate made to the Bill:

  • The Senate increased the minimum capital investment required to qualify for exemption. Projects involving a capital investment of $200 million qualify for a ten year sales tax exemption. Those with $250 million investment qualify for 15 year exemption
  • The Senate defined a qualifying data center to require that the center be used by a single tenant.

How to Qualify

The significant thresholds are:

  • $200 million investment over the first five years following certification in infrastructure, hardware, software, electricity, etc.
  • 20 new full time jobs, which pay 120% of the existing county pay rate
  • 100,000 SF building and larger
  • Dollars spent on or after September 1st 2013.

“This bill is significant because it isn’t location-specific,” said Todd Kercheval, a government affairs consultant who has lobbied for data center tax incentives. “These incentives are truly going to benefit enterprise companies, technology firms, and many communities all across Texas.”

To qualify, data center owner, operator or occupants must jointly or independently meet required capital investment, create 20 full time permanent jobs that pay at least 120% of the average weekly wage of the given county, with these jobs maintained for five years.

No investments made or jobs created prior to September 1, 2013 will count. The Comptroller of Public Accounts must pre-approveand will issue registration numbers.

What the exemption doesn’t 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.

“Data centers benefit communities by increasing real estate values in areas that are often underutilized,” Hilderbran said. “Higher real estate values mean more tax dollars for schools.”

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