Virginia – Investment and Job Creation Requirements for Data Center Exemptions

SALT Report 1220 – The Virginia Tax Commissioner has issued a ruling regarding the investment and job creation requirements for the sales and use tax data center exemption. The Commissioner provides three scenarios.
First Scenario
A single entity makes a data center investment of $150 million, creates 50 new jobs, and enters into an agreement with the Virginia Economic Development Partnership (VEDP). In order for purchases or leases of tangible personal property to qualify for the data center exemption, the property must be purchased or leased for use in a qualifying data center.

A qualifying data center is a data center that on or after January 1, 2009

  • Is located in a Virginia locality
  • Results in a new capital investment of at least $150 million; and
  • Results in the creation of at least 50 new jobs associated with the operation or maintenance of the data center, these jobs must pay at least one and one-half times the average wage in that locality

The jobs requirement can be reduced to 25 new jobs if the data center is located in a locality that has an unemployment rate of at least 150% of the average statewide unemployment rate or is located in an enterprise zone.

Assuming that all other requirements of the exemption are met, the owner of the data center may use the exemption because it has met the capital investment and job creation requirements and has entered into the required memorandum of understanding with the VEDP.

Second Scenario

A single entity makes a data center investment of $150 million, signs agreements with tenants who commit to create 50 jobs, submits verification of the job creation, and enters into a memorandum of understanding with VEDP.  Assuming that all requirements of the exemption are met, the owner of the data center would qualify to use the exemption.

The statute does not limit the job creation requirement to persons directly employed and paid by the entity that owns the data center. However, the statute does require that the new jobs be associated with the operation or maintenance of the data center.

If allowed under the terms of the agreement, employees of contractors and tenants who are located at the data center may be considered new jobs associated with the operation and maintenance of the data center. However, in that case, only the entity that owns the data center would qualify for the exemption.

Third Scenario

A number of tenants create a single entity, such as a limited liability company (LLC), for the construction and operation of a data center, make a data center investment of at least $150 million, sign agreements with tenants who contractually commit to create 50 jobs, submit verification of the job creation, and enters into a memorandum of understanding with the VEDP as a single entity.

In this case, the exemption does not limit the job creation requirement to persons employed and paid directly by the entity that owns the data center. However, the statute requires that the new jobs are associated with the operation or maintenance of the data center. If allowed under the terms of the agreement with VEDP, employees of contractors and tenants who are located at the data center may be considered new jobs. However, only the entity owning the data center would qualify for the exemption. An exemption certificate would be issued only to the LLC as the qualifying single entity and would not be issued to any specific tenant.

For Further Information:

Virginia Department of Taxation – Ruling of Commissioner P.D. 11-183