State Rep. Tedd C. Nesbit (R-Butler/Mercer Counties) said in a recent memorandum that he plans to introduce legislation to establish a sales and use tax exemption for certain equipment purchased by data centers and their tenants to encourage companies to locate their data centers in Pennsylvania.
“My bill will help create jobs and new sustainable revenue,” Nesbit wrote. “It promotes economic growth; fosters Pennsylvania’s workforce development through the creation of high-paying, high-tech jobs in computer data centers and related industries. I urge you to support this sales tax exemption for data centers, an industry that represents the future for Pennsylvania. Please join me in cosponsoring this legislation.”
The new exemption would replace an exemption that Pennsylvania enacted in 2016. The 2016 program has an annual cap of $5 million. To be eligible for the program, data center owners and operators must have a minimum payroll of $1 million or make capital investments of $25 million in a county with a population less than 250,000 or $50 million in a county with a population greater than 250,000. Tenants of data centers meeting these requirements are eligible for the program on purchases of data center equipment if they have a two-year agreement with the certified data center to use 100 kilowatts of power per month.
The new bill would increase the investment thresholds that data center owners and operators must meet from $25 and $50 million to $35 and $60 million respectively. To qualify for the program, data center owners and operators would have to meet the payroll and capital investment thresholds and would no longer be allowed to include the payroll of their tenants to meet the $1 million payroll requirement.
Nesbit noted that the $5 million cap in the 2016 program requires the sales tax exemption to be implemented through a refund program rather than the standard exemption certificate. He wrote in the memorandum that the $5 million is allocated pro rata amongst all eligible applicants. Because of this, companies considering locating their data centers in Pennsylvania do not know the amount of savings they would be able to invest in additional capital or jobs until more than a year after they make their investments.
Because sales tax refund requests exceeded the $5 million annual cap in 2018, refunds were prorated amongst refund applicants. Nesbit wrote that this indicates that demand is exceeding supply.
“Converting the refund program to the standard exemption certificate will allow Pennsylvania to compete with Ohio and Virginia and nearly 20 other states that have implemented a standard sales tax exemption certificate program, allowing data centers and their tenants to more effectively plan for additional investments,” Nesbit wrote.