By: Anderson (Senate Sponsor - Parker) H.B. No. 3104
         (In the Senate - Received from the House May 8, 2023;
  May 9, 2023, read first time and referred to Committee on Finance;
  May 15, 2023, reported favorably by the following vote:  Yeas 17,
  Nays 0; May 15, 2023, sent to printer.)
Click here to see the committee vote
 
 
A BILL TO BE ENTITLED
 
AN ACT
 
  relating to the temporary exemption of certain tangible personal
  property related to certain connected data center projects from
  sales and use taxes.
         BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
         SECTION 1.  Subchapter H, Chapter 151, Tax Code, is amended
  by adding Section 151.3596 to read as follows:
         Sec. 151.3596.  PROPERTY USED IN CERTAIN CONNECTED DATA
  CENTER PROJECTS; TEMPORARY EXEMPTION. (a) In this section:
               (1)  "Affiliated group" has the meaning assigned by
  Section 171.0001.
               (2)  "Connected data center project" means a project
  that:
                     (A)  is located in this state;
                     (B)  is composed of one or more buildings:
                           (i)  comprising at least 250,000 square feet
  of space;
                           (ii)  located or to be located on contiguous
  or noncontiguous parcels of land that are commonly owned, owned by
  affiliation with the qualifying operator, or leased by a common
  qualifying operator; and
                           (iii)  connected to each other:
                                 (a)  by fiber and associated equipment
  required for operating a fiber transmission network between data
  center buildings and upstream Internet peering points for the sole
  use of the qualifying occupant; and
                                 (b)  for the purpose of providing
  redundancy and resiliency for the data center services provided in
  each building;
                     (C)  is specifically constructed or refurbished
  and primarily used to house servers and related equipment and
  support staff for the processing, storage, and distribution of
  data;
                     (D)  is used by a single qualifying occupant for
  the processing, storage, and distribution of data;
                     (E)  is not used primarily by a telecommunications
  provider to place tangible personal property used to deliver
  telecommunications services; and
                     (F)  has an uninterruptible power source, backup
  electricity generation system, fire suppression and prevention
  system, and physical security that includes restricted access,
  video surveillance, and electronic systems.
               (3)  "County average weekly wage" means the average
  weekly wage in a county for all jobs during the most recent four
  quarterly periods for which data is available, as computed by the
  Texas Workforce Commission, at the time a connected data center
  project creates a job used to qualify under this section. If the
  connected data center project is located in more than one county,
  the county average weekly wage for each county in which the project
  is located may be calculated by averaging the county average weekly
  wages of all counties in which the project is located.
               (4)  "Permanent job" means an employment position that
  will exist for at least five years after the date the job is
  created.
               (5)  "Qualifying connected data center project" means a
  connected data center project that meets the qualifications
  prescribed by Subsection (d).
               (6)  "Qualifying job" means a full-time, permanent job
  that pays at least 120 percent of the county average weekly wage in
  the county in which the job is based. The term includes a new
  employment position staffed by a third-party employer if a written
  contract exists between the third-party employer and a qualifying
  owner, qualifying operator, or qualifying occupant that provides
  that the employment position is permanently assigned to an
  associated qualifying connected data center project. The term does
  not include a job that is moved from one county in this state to
  another county in this state.
               (7)  "Qualifying occupant" means a person who contracts
  with a qualifying owner or qualifying operator to place, or cause to
  be placed, and to use tangible personal property at the qualifying
  connected data center project or, in the case of a qualifying
  occupant who is also the qualifying owner and the qualifying
  operator, who places or causes to be placed and uses tangible
  personal property at the qualifying connected data center project.
  The term includes a member of the person's affiliated group.
               (8)  "Qualifying operator" means a person who controls
  access to a qualifying connected data center project, regardless of
  whether that person owns each item of tangible personal property
  located at the qualifying connected data center project. The term
  includes a member of the person's affiliated group.  A qualifying
  operator may also be the qualifying owner.
               (9)  "Qualifying owner" means a person who owns one or
  more buildings in which a qualifying connected data center project
  is located. The term includes a member of the person's affiliated
  group. A qualifying owner may also be the qualifying operator.
         (b)  Except as otherwise provided by this section, tangible
  personal property that is necessary and essential to the operation
  of a qualifying connected data center project is exempted from the
  taxes imposed by this chapter if the tangible personal property is
  purchased for installation at, incorporation into, or in the case
  of electricity, use in a qualifying connected data center project
  by a qualifying owner, qualifying operator, or qualifying occupant,
  and the tangible personal property is:
               (1)  electricity;
               (2)  an electrical system;
               (3)  a cooling system;
               (4)  a backup electricity generation system;
               (5)  hardware or a distributed mainframe computer or
  server;
               (6)  a data storage device;
               (7)  network connectivity equipment;
               (8)  a rack, cabinet, and raised floor system;
               (9)  a peripheral component or system;
               (10)  software;
               (11)  a mechanical, electrical, or plumbing system that
  is necessary to operate any tangible personal property described by
  Subdivisions (2)-(10);
               (12)  any other item of equipment or system necessary
  to operate any tangible personal property described by Subdivisions
  (2)-(11), including a fixture; and
               (13)  a component part of any tangible personal
  property described by Subdivisions (2)-(10).
         (c)  The exemption provided by this section does not apply
  to:
               (1)  office equipment or supplies;
               (2)  maintenance or janitorial supplies or equipment;
               (3)  equipment or supplies used primarily in sales
  activities or transportation activities;
               (4)  tangible personal property on which the purchaser
  has received or has a pending application for a refund under Section
  151.429;
               (5)  tangible personal property not otherwise exempted
  under Subsection (b) that is incorporated into real estate or into
  an improvement of real estate;
               (6)  tangible personal property that is rented or
  leased for a term of one year or less; or
               (7)  notwithstanding Section 151.3111, a taxable
  service that is performed on tangible personal property exempted
  under this section.
         (d)  Subject to Subsection (j), a connected data center
  project may be certified by the comptroller as a qualifying
  connected data center project for purposes of this section if, on or
  after September 1, 2023:
               (1)  a single qualifying occupant:
                     (A)  contracts with a qualifying owner or
  qualifying operator to lease space in which the qualifying occupant
  will locate a connected data center project; or
                     (B)  occupies a space that was not previously used
  as a data center in which the qualifying occupant will locate a
  connected data center project, in the case of a qualifying occupant
  who is also the qualifying operator and the qualifying owner; and
               (2)  the qualifying owner, qualifying operator, or
  qualifying occupant, jointly or independently:
                     (A)  creates at least 40 qualifying jobs in the
  county or counties in which the connected data center project is
  located;
                     (B)  makes or agrees to make a capital investment,
  on or after September 1, 2023, of at least $500 million in that
  particular connected data center project, the amount of which may
  not include a capital investment to replace personal property
  previously placed in service in that connected data center project,
  over a five-year period beginning on the earlier of:
                           (i)  the date the connected data center
  project submits the application described by Subsection (e); or
                           (ii)  the date the connected data center
  project is certified by the comptroller as a qualifying connected
  data center project; and
                     (C)  agrees to contract for at least 20 megawatts
  of transmission capacity for the operation of the connected data
  center project.
         (e)  A connected data center project that is eligible under
  Subsection (d) to be certified by the comptroller as a qualifying
  connected data center project shall apply to the comptroller for
  certification as a qualifying connected data center project and for
  the issuance of a registration number or numbers by the
  comptroller. The application must be made on a form prescribed by
  the comptroller and include the information required by the
  comptroller. The application must include the name and contact
  information for the qualifying occupant, and, if applicable, the
  name and contact information for the qualifying owner and the
  qualifying operator who will claim the exemption authorized under
  this section. The application form must include a section for the
  applicant to certify that the capital investment required by
  Subsection (d)(2)(B) will be met independently or jointly by the
  qualifying occupant, qualifying owner, or qualifying operator
  within the time period prescribed by Subsection (d)(2)(B).
         (f)  The exemption provided by this section begins on the
  date the connected data center project is certified by the
  comptroller as a qualifying connected data center project and
  expires on the 20th anniversary of that date, if the qualifying
  occupant, qualifying owner, or qualifying operator, independently
  or jointly makes a capital investment of $500 million or more as
  provided by Subsection (d)(2)(B).
         (g)  Each person who is eligible to claim an exemption
  authorized by this section must hold a registration number issued
  by the comptroller. The registration number must be stated on the
  exemption certificate provided by the purchaser to the seller of
  tangible personal property eligible for the exemption.
         (h)  The comptroller shall revoke all registration numbers
  issued in connection with a qualifying connected data center
  project that the comptroller determines does not meet the
  requirements prescribed by Subsection (d). Each person who has the
  person's registration number revoked by the comptroller is liable
  for taxes, including penalty and interest from the date of
  purchase, imposed under this chapter on purchases for which the
  person claimed an exemption under this section, regardless of
  whether the purchase occurred before the date the registration
  number was revoked.
         (i)  The comptroller shall adopt rules consistent with and
  necessary to implement this section, including rules relating to:
               (1)  a qualifying connected data center project,
  qualifying owner, qualifying operator, and qualifying occupant;
               (2)  issuance and revocation of a registration number
  required under this section; and
               (3)  reporting and other procedures necessary to ensure
  that a qualifying connected data center project, qualifying owner,
  qualifying operator, and qualifying occupant comply with this
  section and remain entitled to the exemption authorized by this
  section.
         (j)  A connected data center project is not eligible to
  receive an exemption under this section if the connected data
  center project is subject to an agreement limiting the appraised
  value of the connected data center's property under former
  Subchapter B or C, Chapter 313.
         SECTION 2.  Section 151.317(a), Tax Code, is amended to read
  as follows:
         (a)  Subject to Sections 151.1551, 151.359, [and] 151.3595,
  and 151.3596 and Subsection (d) of this section, gas and
  electricity are exempted from the taxes imposed by this chapter
  when sold for:
               (1)  residential use;
               (2)  use in powering equipment exempt under Section
  151.318 or 151.3185 by a person processing tangible personal
  property for sale as tangible personal property, other than
  preparation or storage of prepared food described by Section
  151.314(c-2);
               (3)  use in lighting, cooling, and heating in the
  manufacturing area during the actual manufacturing or processing of
  tangible personal property for sale as tangible personal property,
  other than preparation or storage of prepared food described by
  Section 151.314(c-2);
               (4)  use directly in exploring for, producing, or
  transporting, a material extracted from the earth;
               (5)  use in agriculture, including dairy or poultry
  operations and pumping for farm or ranch irrigation;
               (6)  use directly in electrical processes, such as
  electroplating, electrolysis, and cathodic protection;
               (7)  use directly in the off-wing processing, overhaul,
  or repair of a jet turbine engine or its parts for a certificated or
  licensed carrier of persons or property;
               (8)  use directly in providing, under contracts with or
  on behalf of the United States government or foreign governments,
  defense or national security-related electronics, classified
  intelligence data processing and handling systems, or
  defense-related platform modifications or upgrades;
               (9)  use directly by a data center, [or] large data
  center project, or connected data center project that is certified
  by the comptroller as a qualifying data center under Section
  151.359, [or] a qualifying large data center project under Section
  151.3595, or a qualifying connected data center project under
  Section 151.3596 in the processing, storage, and distribution of
  data;
               (10)  a direct or indirect use, consumption, or loss of
  electricity by an electric utility engaged in the purchase of
  electricity for resale; or
               (11)  use in timber operations, including pumping for
  irrigation of timberland.
         SECTION 3.  The change in law made by this Act does not
  affect tax liability accruing before the effective date of this
  Act. That liability continues in effect as if this Act had not been
  enacted, and the former law is continued in effect for the
  collection of taxes due and for civil and criminal enforcement of
  the liability for those taxes.
         SECTION 4.  This Act takes effect September 1, 2023.
 
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