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Texas: State Sales Tax Exemption for Data Centers


 Texas: state sales tax exemption incentivize creation of new data centers.

Last spring, Texas Comptroller of Public Accounts has published information regarding the exemption on its website, underscoring that local sales taxes still apply.

Effective September 1, 2013, the new law provides "significant tax incentives to companies that open new data centers in the state, a move designed to bring in new technology firms and capital investment." According to the author of the bill, Representative Harvey Hilderbran (R-Kerrville), Texas has long competed well for large data centers with respect to climate, geography, and economy; however, its tax code has hampered growth in this area. (Data Center Journal). 

Since the beginning of September, "tangible personal property that is necessary and essential to the operation of a qualified data center is exempted from [state sales taxes] if the tangible personal property …" meets certain qualifications.

Examples of exempt tangible personal property include:

  • Generators;
  • Electricity and electrical systems;
  • Racks, cabinets, and raised floor systems;
  • Servers;
  • Software, and
  • Storage devices.

In order to benefit for the exemption, data centers must meet certain qualifications outlined in the legislation. For example, a data center must:

  • Occupy "a space that was not previously used as a data center;"
  • Create "at least 20 qualifying jobs in the county where the data center is located, not including jobs moved from one county this state to another county in this state;" and
  • Make or agree to make a capital investment on or after September 1, 2013, of at least $200 million in that particular data center over a five-year period beginning on the date the data center is certified by the comptroller as a qualifying data center."

The state sales tax exemption is not permanent. As outlined in the legislation, it expires:

  • On the 10th anniversary of [the date the exemption takes effect], if a capital investment of at least $200 million but less than $250 million has been made; or
  • On the 15th anniversary of that date, if a capital investment of $250 million or more has been made.

In other words, the more a company invests, the longer it can take advantage of a state sales tax exemption. Powerful motivation, indeed. At least one company is already planning to expand in the state, thanks in part to this exemption.

How does your business handle sales tax exemptions? Automation makes it a cinch.

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Sales tax rates, rules, and regulations change frequently. Although we hope you'll find this information helpful, this blog is for informational purposes only and does not provide legal or tax advice.
Gail Cole
Avalara Author
Gail Cole
Gail Cole
Avalara Author Gail Cole
Gail began researching and writing about sales tax in 2012 and has been fascinated with it ever since. She has a penchant for uncovering unusual tax facts, and endeavors to make complex sales tax laws more digestible for both experts and laypeople.