Retail Sales and Use Tax.
Retail sales taxes are imposed on retail sales of most articles of tangible personal property, digital products, and some services. A retail sale is a sale to the final consumer or end user of the property, digital product, or service. If retail sales taxes were not collected when the user acquired the property, digital products, or services, then use tax applies to the value of property, digital product, or service when used in this state. The state, all counties, and all cities levy retail sales and use taxes. The state sales and use tax rate is 6.5 percent; local sales and use tax rates vary from 0.5 percent to 4.0 percent, depending on the location.
Rural Data Center Tax Preference.
A retail sale and use tax exemption is provided qualifying businesses operating data centers, and qualifying tenants of those data centers, located in rural counties.
The sales and use tax exemption is available for purchases of eligible server equipment and labor and services to install server equipment in an eligible data center. In addition, a sales and use tax exemption is allowed for purchases of eligible power infrastructure and the labor and services to construct, install, repair, alter, or improve eligible power infrastructure.
The owner of an eligible data center with a combined square footage of at least 100,000 square feet and the tenants of an eligible data center located in a rural county may be eligible for a sales and use tax exemption. A rural county is defined as a county with a population density of less than 100 persons per square mile or counties smaller than 225,000 square miles as of April 1, 2018. Currently, there 30 counties that meet the rural county definition.
To qualify, the data center must have a building permit to construct, renovate, or expand the data center issued between:
Only 12 data centers that begin construction on or after July 1, 2015, but before July 1, 2025, can be approved for the exemption. Of the 12, only eight data centers were able to be approved that began construction on or after July 1, 2015, but before July 1, 2019.
The exemption is available on a first-in-time basis based on the date the application for the sales and use tax exemption is received by the Department of Revenue (DOR). Exemption certificates expire two years after the date of issuance, unless construction of the data center has begun.
An eligible taxpayer must file an annual tax performance report by May 31 of the year following the year the applicant becomes eligible to claim the sales and use tax exemption.
There are hiring requirements for recipients of the sales and use tax exemption. Within six years of the issue date on the sales and use tax exemption certificate, the qualifying data center must establish that net employment has increased by a minimum of 35 family-wage employment positions or three family-wage employment positions for each 20,000 square feet of space or less that is newly dedicated to housing working servers at the eligible computer data center. If the number of family wage jobs has not increased or been met within those six years, all previously exempted sales and use taxes are immediately due and payable.
Family-wage employment positions are defined as new permanent full-time jobs with employer-provided health care, requiring 40 hours of work and with a wage that is 150 percent of the per capita personal income of the county where the center is located.
Tax Preference Performance Statement.
State law provides for a range of tax preferences that confer reduced tax liability upon a designated class of taxpayer. Tax preferences include tax exclusions, deductions, exemptions, preferential tax rates, deferrals, and credits. Currently, Washington has over 650 tax preferences, including a variety of sales and use tax exemptions. Legislation that establishes or expands a tax preference must include a Tax Preference Performance Statement (TPPS) that identifies the public policy objective of the preference, as well as specific metrics that the Joint Legislative Audit and Review Committee can use to evaluate the effectiveness of the preference. All new tax preferences automatically expire after 10 years unless an alternative expiration date is provided.
The sales and use tax exemptions for qualifying businesses operating data centers located in rural counties, and qualifying tenants of those data centers, is extended. No new exemption certificates may be issued by the DOR on or after July 1, 2035, and the exemptions fully expire July 1, 2047.
The exemption certificate is effective on the date the application is received from the DOR. No tax refunds may be given for purchases made before the effective date of this bill.
Qualified businesses and qualified tenants may use their exemption certificate to refurbish existing eligible data centers. To be considered refurbished, the qualifying business must certify to the DOR the refurbishment is complete. It is considered complete when the improved potion of the computer data center is operationally complete and can be used as intended.
For exemptions after the effective date of the Act, the income requirement to be considered a family-wage employment positions a wage equivalent to or greater than 125 percent of the per capita personal income of the county in which the qualified project is located. The net increase of family-wage jobs must be since the issuance of the qualifying business's exemption certificate.
The amount of family wage jobs the qualifying tenant must have created may be based on the proportion of the space they occupy in the data center. In addition to existing requirements for noncompliance, an issued exemption certificate is also canceled if the number of family-wage jobs requirement is not met.
An exemption certificate may be assigned or transferred if the assignee or transferee meets specified requirements and has the written consent of the DOR.
Terms are defined, including the following:
Tax Performance Statement.
A TPPS is included, stating the Legislature's intent to maintain and grow the existing data center sector and encourage development of new data center facilities and refurbishment of existing data centers for the purpose of increasing state tax competitiveness, increasing or maintaining construction and trade job growth in rural areas, and increasing local tax revenue streams. The Legislature also intends to extend the expiration of the tax preference if the review finds the tax preference is: generating capital investment in new computer data centers, refurbished data centers, and existing data centers (e.g., replacement server equipment); generating state and local tax collections from data center investment and operations; and generating construction and trade jobs in the state. The review must factor in changing economic conditions.