SALT Report 2031 – The New York Department of Taxation and Finance issued an opinion regarding whether a Taxpayer is entitled to claim the exemption from sales and use tax for Internet data center operators. The Taxpayer in this case owns a condominium in a high rise building and plans to convert the property into an Internet data center facility. Once completed, the facility will provide a high security environment for the servers that will host its customer’s web sites as well as provide uninterrupted Internet access.
The Taxpayer’s conversion plan includes a “powered shell” space. This space will be partially equipped by the Taxpayer; however its tenants will have the option to make customized improvements by providing equipment, machinery and tangible personal property that will suit their individual needs. Many of the powered shell tenants will be large businesses that have specific data center requirements, and the capital to invest in the development of their personal Internet data center space.
The Taxpayer will also develop part of the space into a “turn-key” data center which will appeal to those who have smaller data center requirements, such as emerging businesses. This is likely to appeal to new or small business as they will not incur the initial investment and ongoing maintenance costs associated with building and maintaining a data center space.
Finally, the Taxpayer will develop a “carrier equipment room” and a “meet me room” space to house the network equipment that will provide uninterrupted Internet access to all of the Taxpayer’s customers.
In their opinion, the Department referred to New York Tax Law section 1115(a)(37)(i) which provides an exemption for, “Machinery, equipment and other tangible personal property specified herein, sold to a person operating an internet data center located in this state for use in such a center, where such property: (a) will be located or installed in a facility or structure which is an internet data center and (b) is required for and directly related to the provision of internet website services for sale by the operator of the center.”
The Department determined that the Taxpayer met all of the requirements of the exemption and qualifies as an operator of an Internet data center. Accordingly, the Taxpayer is entitled to claim the sales and use tax exemption found in Tax Law section 1115(a)(37).
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