SALT Report 1447 – The New York Department of Taxation and Finance issued a sales tax bulletin regarding Internet data centers. If a taxpayer operates an Internet data center in New York, certain purchases of property and services may be exempt from sales tax. The bulletin explains who is considered an operator of an Internet data center for purposes of the exemption, and which property and services are exempt from tax.
An Operator of an Internet Data Center Is a Person Who:
- Operates a data center specifically designed and constructed as a high security environment for the location of servers and similar equipment that hosts Internet websites, and
- Provides uninterrupted Internet access to customers’ Web pages and continuous management of Internet traffic for customers’ websites
However, you will not qualify for this exemption if you’re primarily engaged in the sale of your own Internet access service.
Exempt Tangible Personal Property
An operator of an Internet data center does not have to pay sales tax on the purchase or use of machinery, equipment, and certain tangible personal property such as:
- Computer system hardware, such as servers and routers,
- Pre-written computer software,
- Storage racks and cages for computer equipment,
- Property necessary to maintain the appropriate climate-controlled environment, such as air-filtration equipment, air conditioning equipment, and vapor barriers,
- Power generators and power conditioners, and
- Property that will constitute raised flooring when installed
The exempt property must be placed or installed in the Internet data center for use there, and be required for and directly related to the Internet website services for sale.
Internet data center operators may purchase the following services exempt from tax when the services are provided directly to or in relation to exempt property such as the:
- Installation, maintenance, service, and repair of qualified tangible personal property,
- Maintenance, service, and repair of qualified real property, or
- Protective and detective services
If any of the purchased services are for property that is both taxable and exempt, an allocation may be used to determine the amount related to the exempt property however, the exempt portion must be separately stated on the invoice or the whole invoice will be subject to tax. Acceptable allocation methods include those based on square footage, time, or property values.
Exemptions for Contractors, Subcontractors, or Repairmen
A contractor, subcontractor, or repairman may buy property exempt from tax only if the property is to be part of a capital improvement project at the Internet data center and the property is used to install, maintain, service, or repair tangible personal property used for Web hosting.
An Internet data center operator should use Form ST-121.5, Exempt Use Certificate for Operators of Internet Data Centers (Web Hosting), when purchasing property or services exempt from tax. A contractor, subcontractor, or repairman should use Form ST-120.1, Contractor Exempt Purchase Certificate, to purchase exempt property or services.
For Further Information: