Missouri has enacted legislation providing new incentives for the location and expansion of data centers within the state.1 The incentive program offers qualifying taxpayers an exemption of state and local sales and use taxes incurred through activities required to construct a new data center or expand an existing data center. In addition, Missouri allows for an exemption of sales and use tax over a defined benefit period for certain other costs associated with operating a qualified facility.
Eligibility
To qualify, the facility operated by the taxpayer must be primarily engaged in either data processing, web hosting and related services (NAICS Code 518210), or Internet publishing and broadcasting and web search portals (NAICS Code 519130).2 The state has set forth separate criteria for new data centers and expanding data centers.
New Data Storage Centers
In order to be considered a new facility, the facility must be newly constructed, acquired through purchase, or leased by the taxpayer on or after August 28, 2015.3 New data center projects must commit to a capital investment of at least $25 million within 36 months of conditional approval for exemption from the sales and use tax and must create at least 10 new jobs at 150 percent of the county average wage during the 36-month period.4 If certified, projects relating to new data centers are eligible for an exemption for a period of up to 15 years.5 The actual period of the exemption is subject to negotiation with the Missouri Department of Economic Development (DED).
Expanding Data Storage Centers
Net capital investment related to data center expansion must equal at least $5 million within 12 months and the expansion must result in the creation of at least five new jobs at 150 percent of the county average wage during a 24-month period following the date of conditional approval for exemption from the sales and use tax.6 If certified, data center expansion projects are eligible for an exemption for a period of up to 10 years.7 The actual period of the exemption is subject to negotiation with the DED.
Consortium Complex
In certain cases, several taxpayers may be involved in constructing or operating a data center. The DED will consider awarding an exemption to each party that is part of the project. In these cases, separate companies are allowed to combine their efforts in one data center to meet capital investment and hiring requirements.8
Application Process
Like other economic development programs in Missouri, a taxpayer engaged in a qualifying activity, which plans to construct a new data center or expand an existing data center, must apply to the state with a notice of intent stating the taxpayer's intent to construct or expand a data center and request the exemption.9 This notice must include estimates of the following items:
- Construction or rehabilitation materials;
- Machinery and equipment purchases;
- Utility costs over the designated term; and
- The number of new jobs to be hired over the designated term at the designated data storage center.10
After submission of the notice of intent, the state will make a determination of eligibility and qualification for the award. If approved, the taxpayer will receive formal notice of approval from the state. It is important to note that qualification is not predetermined, and companies should be encouraged to engage in active dialogue with the DED throughout the application process.
When determining the length of the award, the state will evaluate each project on a caseby- case basis to understand its economic and fiscal impact to the state. The amount of any exemption provided under this program will not exceed the projected net benefit to the state over the designated period.11 If at any time during the designation period that the taxpayer fails to comply with the DED standards and requirements, repayment penalties may be imposed.12
Project Purchases Qualifying for Exemption
As mentioned above, the benefit includes an exemption of state and local sales and use tax associated with activities necessary to build a new data center or expand an existing facility including all of the following items:
- Electrical energy, gas, water and other utilities including telecommunication and Internet services (for expanding data storage centers, only the additional annual amount of utilities used for such expansion);
- All machinery, equipment and computers used in the data storage center; and
- All retail sales of tangible personal property and materials for the purpose of constructing any new data storage center or constructing, repairing or remodeling any expanding data storage center.13
Commentary
Missouri followed the trend of several states which enacted data center legislation in the past year. The wave of legislative activity is due to the fact that many existing programs incentivize jobs over investment and accordingly, do not encourage the development of data center projects which often involve large levels of capital investment and few jobs. Furthermore, the legislation is largely targeted towards sales tax exemptions on start-up construction and ongoing utility costs, which are the largest cost of doing business for data center projects. The legislative activity and fierce state competition is evidence of the tremendous economic impact of these centers on the state and local economy. We anticipate additional legislative activity in this area in the coming year as states continue to compete for larger data center projects.
Footnotes
1 S.B. 149, Laws 2015, enacting MO. REV. STAT. § 144.810 (effective Aug. 28, 2015).
2 MO. REV. STAT. § 144.810.1.(4).
3 MO. REV. STAT. § 144.810.1.(11)(a).
4 MO. REV. STAT. § 144.810.1.(11)(c), (d).
5 MO. REV. STAT. § 144.810.2.
6 MO. REV. STAT. § 144.810.1.(6).
7 MO. REV. STAT. § 144.810.4.
8 MO. REV. STAT. § 144.810.1.(11)(c).
9 MO. REV. STAT. §§ 144.810.3; 144.810.5.
10 Data Center Sales Tax Exemption Program, Missouri Department of Economic Development. For additional information, see https://ded.mo.gov/BCS%20Programs/BCSProgramDetails.aspx?BCSProgramID=150.
11 MO. REV. STAT. §§ 144.810.2; 144.810.4.
12 MO. REV. STAT. § 144.810.6.(2).
13 MO. REV. STAT. §§ 144.810.2.(1)-(3); 144.810.4.(1)-(3).
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
