On May 7, 2018, House Bill 696 was signed into law by Georgia Governor Nathan Deal. The new law exempts qualifying high-technology data centers from Georgia sales and use taxes. With Georgia sales and use tax rates ranging between 6% and 8.9% (as of April, 2018), the proposed exemption better positions Georgia as an appealing location for the growing data center industry. The law potentially could attract large technology companies such as Apple, Google, and Amazon to the state. It may also encourage data center REITs to follow the lead of CyrusOne and Equinix, both of which have recently developed multi-tenant data centers in the metro Atlanta area.

Data centers are the backbones for cloud computing and the social networking, electronic commerce, and online video industries. At their heart, data centers consist of a series of servers that use large quantities of electricity and must be kept in a cool, low-humidity environment in order to function. Accordingly, the storage of electronic data requires a facility with significantly more robust electrical and ventilation systems than standard industrial warehouses provide, including back-up electrical infrastructure. Advanced fire systems may also be necessary to protect the servers. Although some technology companies may find it economical to build their own data centers, it is more common for companies to lease space in a multi-tenant data center. In the latter circumstance, the technology company brings its servers to the data center, where it is provided with cabinet space for the servers, along with access to the electrical and ventilation infrastructure owned by the data center. Some data centers provide additional services to tenants, repairing hardware and ensuring that telecommunications connections are maintained. Given that the development of a data center requires substantial up-front expenditures on high-technology equipment, the sales and use tax exemption is likely to be an effective incentive to develop new facilities in Georgia.

The new law defines a high-technology data center as a facility, or group of connected facilities, that is developed to “power, cool, secure, and connect” data center computer equipment. The law provides the sales and use tax exemption for computers and related equipment (including backup generators, ventilation units and cooling towers, and energy storage and distribution equipment) bought or leased for use in a high-technology data center.

To qualify for the sales and use tax exemption, the high-technology data center must be prepared to meet a minimum investment threshold. The minimum investment threshold requires the high-technology data center to make between $100 million and $250 million (depending on the population of the county where the data center is located) in aggregate expenditures over a seven-year period and create 20 “new quality jobs.” A “new quality job” is a job that is located in Georgia, has a regular work week of at least 30 hours, is not already existing in Georgia, and that pays at or above 110% of the average wage of the county in which it is located.

A taxpayer seeking the sales and use tax exemption must apply to the Commissioner of the Georgia Department of Revenue. If granted, the exemption is valid for seven years. During that time, the Commissioner may require the high-technology data center to furnish information necessary to determine its compliance with the minimum investment threshold. If the Commissioner believes that a high-technology data center is unlikely to meet the minimum investment threshold, the Commissioner may revoke the exemption at any time. At the end of the seven-year exemption period, the high-technology data center must file a final report with the Commissioner listing the expenditures incurred in satisfying the minimum investment threshold and the number of new quality jobs created. If the Commissioner makes a determination that the high-technology data center failed to satisfy the minimum investment threshold requirements, the exempted sales and use taxes must be repaid (with interest) within 90 days. The Commissioner may require a bond from the high-technology data center applying for the exemption of up to $20 million to ensure repayment of such taxes.

The law takes effect on January 1, 2019, but would apply retroactively to transactions beginning on July 1, 2018. The exemption expires on December 31, 2028.