Senate Bill 5414 - State of Washington 67th Legislature (2021 Regular Session)

Summary

Senate Bill 5414 of the State of Washington 67th Legislature, 2021 Regular Session, is a bill by Senators Gildon, Conway, Fortunato, and Wilson, C., read first time February 3, 2021, relating to providing a tax preference for data centers in counties with a certain population. The act adds new sections to chapter 82.08 RCW and a new section to chapter 82.12 RCW. A sales tax exemption section covers eligible server equipment and power infrastructure in an eligible computer data center in a county with a population between 900,000 and 1,000,000, with the exemptions expiring July 1, 2037. It sets a minimum of 1.5 megawatts of available power for a qualifying business and a minimum electrical capacity of 150 kilowatts for a qualifying tenant.

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Full text

     S-0455.3

                               SENATE BILL 5414


     State of Washington       67th Legislature        2021 Regular Session

     By Senators Gildon, Conway, Fortunato, and Wilson, C.

     Read first time 02/03/21.      Referred   to   Committee   on   Business,
     Financial Services & Trade.




1        AN ACT Relating to providing a tax preference for data centers in
2    counties with a certain population; adding new sections to chapter
3    82.08 RCW; adding a new section to chapter 82.12 RCW; creating new
4    sections; and providing expiration dates.


 5   BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF WASHINGTON:


 6       NEW SECTION.   Sec. 1.   The legislature finds that data centers
 7   are a cornerstone for strong internet infrastructure that is critical
 8   to the continuing prosperity of Washington's vibrant digital economy.
 9   Under current law, data center incentives are restricted to rural
10   counties and have improved the economies of rural counties. The
11   legislature recognizes that rural county data center investments are
12   necessary but insufficient for the state's total economy and
13   competitiveness. Washington is the only state that restricts
14   incentives geographically. As a result, data centers serving urban
15   counties requiring higher performance and that offer colocation
16   services for multiple tenants that foster technology ecosystems are
17   lost   to  other   states,  particularly   neighboring  Oregon.   The
18   legislature further finds that despite the need, the lack of data
19   center usage growth in Washington urban counties is primarily due to
20   the sales tax, which can add as much as 10 percent to the total cost


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1    of ownership and often runs into the millions of dollars for even
2    mid-level users.


 3       NEW SECTION.   Sec. 2.   (1) This section is the tax preference
 4   performance statement for the tax preferences in sections 3, 4, and
 5   5, chapter . . . , Laws of 2021 (sections 3, 4, and 5 of this act).
 6   This performance statement is only intended to be used for subsequent
 7   evaluation of the tax preferences. It is not intended to create a
 8   private right of action by any party or be used to determine
 9   eligibility for preferential tax treatment.
10       (2) The legislature categorizes these tax preferences as ones
11   intended to improve industry competitiveness, as indicated in RCW
12   82.32.808(2)(b) and as one intended to create or retain jobs as
13   indicated in RCW 82.32.808(2)(c).
14       (3) It is the legislature's specific public policy objective to
15   improve industry competitiveness and to increase, create, or retain
16   jobs in computer data centers in counties with a population between
17   900,000 and 1,000,000, as determined by the April 1, 2020, office of
18   financial management population estimates, thereby increasing family
19   wage jobs. It is the legislature's intent to provide a sales and use
20   tax exemption on eligible server equipment and power infrastructure
21   installed in eligible computer data centers, charges made for labor
22   and services rendered in respect to installing eligible server
23   equipment, and for construction, installation, repair, alteration, or
24   improvement of eligible power infrastructures in order to increase
25   investment in data center construction, leasing, and other investment
26   throughout counties with a population between 900,000 and 1,000,000,
27   as determined by the April 1, 2020, office of financial management
28   population estimates, thereby growing employment in the technology
29   industry while adding real and personal property to state and local
30   property tax rolls, thereby increasing the county tax base.
31       (4) The legislature intends to extend the expiration date of the
32   tax preferences in this act and expand the applicability of the tax
33   preferences to the entire state of Washington if a review finds that
34   the county tax base increased as a result of the construction,
35   leasing, and other investment of computer data centers eligible for
36   the tax preferences.
37       (5) In order to obtain the data necessary to perform the review
38   in subsection (4) of this section, the joint legislative audit and
39   review committee may refer to data available from the department of
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1    revenue regarding county property tax assessments and data provided
2    to the department of revenue pursuant to the annual tax performance
3    report required under RCW 82.32.534.


 4       NEW SECTION.   Sec. 3.   A new section is added to chapter 82.08
 5   RCW to read as follows:
 6       (1)(a) An exemption from the tax imposed by RCW 82.08.020 is
 7   provided for sales to qualifying businesses and to qualifying tenants
 8   of eligible server equipment to be installed, without intervening
 9   use, in an eligible computer data center to which a valid exemption
10   certificate applies, and to charges made for labor and services
11   rendered in respect to installing eligible server equipment.
12       (b) The exemption also applies to sales to qualifying businesses
13   and to qualifying tenants of eligible power infrastructure, including
14   labor, material, equipment, and services rendered in respect to
15   constructing, installing, repairing, altering, or improving eligible
16   power infrastructure at an eligible computer data center for which an
17   exemption certificate has been issued.
18       (c) No new exemption certificates may be issued on or after July
19   1, 2027.
20       (d) The exemptions provided in this section expire July 1, 2037.
21       (2)(a)(i) In order to obtain an exemption, a qualifying business
22   must be located in a county with a population between 900,000 and
23   1,000,000, as determined by the April 1, 2020, office of financial
24   management population estimates and must submit an application to the
25   department for an exemption certificate. The application must include
26   the information necessary, as required by the department, to
27   determine that a business or tenant qualifies for the exemption under
28   this section. The department must issue exemption certificates to
29   qualifying businesses and qualifying tenants. The department may
30   assign a unique identification number to each exemption certificate
31   issued under this section.
32       (ii) For the purposes of demonstrating that the requirements of
33   this subsection (2)(a) are met, a qualifying business must submit
34   records of available power for customers at the time of the
35   application for the exemption under this section. The qualifying
36   business must demonstrate that it has a minimum of 1.5 megawatts of
37   available power. The qualifying business must provide requests for
38   proposals, pricing offered, and marketing materials associated with
39   the requirements of this subsection, as required by the department,
                                     p. 3                          SB 5414
 1   as supporting documentation that the requirements of this subsection
 2   (2)(a) have been met.
 3       (b) In order to obtain an exemption, a qualifying tenant must
 4   contract for a minimum electrical capacity of 150 kilowatts for
 5   server and computer equipment in a qualifying business. Tenants that
 6   previously qualified under RCW 82.08.986 or 82.12.986 must reapply if
 7   they intend to expand into a qualifying business. A qualifying
 8   business or a qualifying tenant claiming the exemption under this
 9   section must present the seller with an exemption certificate in a
10   form and manner prescribed by the department. The seller must retain
11   a copy of the certificate for the seller's files.
12       (c) The exemptions provided in this section are limited to
13   qualifying businesses or tenants, and the department is authorized to
14   approve only two such applications to obtain the exemptions for
15   qualifying businesses in the first year and one exemption in each
16   year three through six. The exemption is available on a first-in-time
17   basis based on the date the application required under this section
18   is received by the department.
19       (d) The exemption certificate is effective on the date the
20   application is received by the department, which is deemed to be the
21   date of issuance. Only purchases on or after the date of issuance
22   qualify for the exemption under this section. No tax refunds are
23   authorized for purchases made before the effective date of the
24   exemption certificate.
25       (e) Exemption certificates expire two years after the date of
26   issuance, unless construction has been commenced.
27       (3)(a) Within six years of the date that the department issued an
28   exemption certificate under this section to a qualifying business or
29   a qualifying tenant with respect to an eligible computer data center,
30   the qualifying business or qualifying tenant must establish that net
31   employment at the eligible computer data center has increased by a
32   minimum of three family wage employment positions for each
33   incremental increase of 20,000 square feet of space that is newly
34   dedicated to housing working servers at the eligible computer data
35   center. For qualifying tenants, the number of family wage employment
36   positions that must be increased under this subsection (3)(a) is
37   based only on the space occupied by the qualifying tenant in the
38   eligible computer data center.
39       (b) In calculating the number of family wage employment
40   positions:
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 1       (i) The owner of an eligible computer data center, in addition to
 2   its own net increase in family wage employment positions, may
 3   include:
 4       (A) The net increase, since the date of issuance of the
 5   qualifying   business's   exemption  certificate,   in    family wage
 6   employment positions employed by qualifying tenants; and
 7       (B) The net increase in family wage employment positions
 8   described in (c)(ii)(B) of this subsection (3).
 9       (ii)(A) Qualifying tenants, in addition to their own net increase
10   in family wage employment positions, may include:
11       (I) A portion of the net increase in family wage employment
12   positions employed by the owner; and
13       (II) A portion of the net increase in family wage employment
14   positions described in (c)(ii)(B) of this subsection (3).
15       (B) The portion of the net increase in family wage employment
16   positions to be counted under this subsection (3)(b)(ii) by each
17   qualifying tenant is equal to the net increase in family wage
18   employment positions at the eligible computer data center as
19   described in (b)(ii)(A)(I) and (II) of this subsection (3),
20   multiplied by the percentage of total space within the eligible
21   computer data center occupied by the qualifying tenant. Any
22   combination of qualifying business and qualifying tenant family wage
23   employment positions may meet this requirement.
24       (c)(i) For purposes of this subsection:
25       (A) For exemption certificates issued on or after the effective
26   date of this section, family wage employment positions are new
27   permanent employment positions requiring 40 hours of weekly work, or
28   their equivalent, on a full-time basis at the eligible computer data
29   center and receiving a wage equivalent to or greater than 125 percent
30   of the per capita personal income of the county in which the
31   qualified project is located.
32       (B) An employment position may not be counted as a family wage
33   employment position unless the employment position is entitled to
34   health insurance coverage provided by the employer of the employment
35   position.
36       (C) "New permanent employment position" means an employment
37   position that did not exist or that had not previously been filled as
38   of the date that the department issued an exemption certificate to
39   the qualifying business or qualifying tenant of an eligible computer
40   data center, as the case may be.
                                     p. 5                          SB 5414
 1       (ii)(A) Family wage employment positions include positions filled
 2   by employees of the qualifying business and by employees of
 3   qualifying tenants.
 4       (B) Family wage employment positions also include individuals
 5   performing work at an eligible computer data center as an independent
 6   contractor hired by the owner of the eligible computer data center or
 7   as an employee of an independent contractor hired by the owner of the
 8   eligible computer data center, if the work is necessary for the
 9   operation of the computer data center, such as security and building
10   maintenance, and provided that all of the requirements in (c)(i) of
11   this subsection (3) are met.
12       (d) For a qualifying business or qualifying tenant that does not
13   meet the requirements of this subsection (3), all previously exempted
14   sales and use taxes are immediately due and payable and any exemption
15   certificate issued to that qualifying business or qualifying tenant
16   under this section is canceled.
17       (4) Qualifying businesses and tenants must claim an exemption
18   under this section in the current tax year when the taxes would have
19   been due unless an extension is filed with the department.
20       (5)(a) A qualifying business or a qualifying tenant claiming an
21   exemption under this section must complete an annual tax performance
22   report as required in RCW 82.32.534. The certificate holder may not
23   at any time assign or transfer a certificate without the prior
24   written consent of the department. The department must allow
25   certificate transfers if the certificate holder meets the following
26   requirements:
27       (i) The certificate assignee or transferee is qualified to do
28   business in the state;
29       (ii) The assignee or transferee acknowledges the transfer of the
30   certificate in writing;
31       (iii) The assignee or transferee agrees to keep and perform all
32   the terms of the certificates; and
33       (iv) An assignment or transfer of the certificate is to an entity
34   that:
35       (A) Controls, is controlled by, or under common control with, the
36   certificate holder;
37       (B) Acquires all or substantially all of the stock or assets of
38   the certificate holder; or
39       (C) Is the resulting entity of a merger or consolidation with the
40   certificate holder.
                                     p. 6                          SB 5414
 1       (b) Information submitted on the tax performance report is not
 2   subject to the confidentiality provisions of RCW 82.32.330 and may be
 3   disclosed to the public upon request, except as provided otherwise in
 4   RCW 82.32.330.
 5       (6) The definitions in this subsection apply throughout this
 6   section unless the context clearly requires otherwise.
 7       (a) "Affiliated" means that one person has a direct or indirect
 8   ownership interest of at least 20 percent in another person.
 9       (b) "Building" means a fully enclosed structure with a weather
10   resistant exterior wall envelope or concrete or masonry walls
11   designed in accordance with the requirements for structures under
12   chapter 19.27 RCW.
13       (c) "Certificate of occupancy" means:
14       (i) For a newly constructed eligible computer data center, the
15   certificate of occupancy issued by a local governing authority for
16   the structure or structures which comprise the eligible computer data
17   center; or
18       (ii) For renovations of an eligible computer data center, the
19   certificate of occupancy issued by a local governing authority for
20   the renovated structure or structures that comprise the eligible
21   computer data center.
22       (d)(i) "Computer data center" means a facility comprised of one
23   or more buildings, which may be comprised of multiple businesses,
24   constructed or refurbished specifically, and used primarily, to house
25   working   servers,    where   the    facility   has   the    following
26   characteristics: (A) Uninterruptible power supplies, generator backup
27   power, or both; (B) sophisticated fire suppression and prevention
28   systems; and (C) enhanced physical security, such as: Restricted
29   access to the facility to selected personnel; continuous on-site
30   security guards; video camera surveillance; an electronic system
31   requiring passcodes, keycards, or biometric scans, such as hand scans
32   and retinal or fingerprint recognition; or similar security features.
33       (ii) For a computer data center comprised of multiple buildings,
34   each separate building constructed or refurbished specifically, and
35   used primarily, to house working servers is considered a computer
36   data center if it has all of the characteristics listed in (d)(i)(A)
37   through (C) of this subsection (6).
38       (iii) A facility comprised of one building or more than one
39   building must have a combined square footage of at least 100,000
40   square feet.
                                     p. 7                          SB 5414
 1       (e) "Electronic data storage and data management services"
 2   includes, but is not limited to: Providing data storage and backup
 3   services, providing computer processing power, hosting enterprise
 4   software applications, and hosting websites. The term also includes
 5   providing services such as email, web browsing and searching, media
 6   applications, and other online services, regardless of whether a
 7   charge is made for such services.
 8       (f) "Eligible computer data center" means a computer data center
 9   having at least 20,000 square feet dedicated for housing working
10   servers. Movable or fixed stand-alone, prefabricated, or modular
11   units, including intermodal shipping containers, do not qualify as
12   "eligible computer data centers."
13       (g) "Eligible power infrastructure" means all fixtures and
14   equipment owned by a qualifying business or qualifying tenant and
15   necessary for the transformation, distribution, or management of
16   electricity that is required to operate eligible server equipment
17   within an eligible computer data center. The term includes
18   generators; wiring; cogeneration equipment; and associated fixtures
19   and   equipment,  such   as   electrical switches,   batteries,  and
20   distribution, testing, and monitoring equipment. The term does not
21   include substations.
22       (h)(i) "Eligible server equipment" means for a qualifying
23   business whose computer data center qualifies as an eligible computer
24   data center, the original server equipment installed in an eligible
25   computer data center on or after the effective date of this section,
26   and replacement server equipment.
27       (ii) For purposes of this subsection (6)(h), "replacement server
28   equipment" means server equipment that:
29       (A) Replaces existing server equipment, if the sale or use of the
30   server equipment to be replaced qualified for an exemption under this
31   section or RCW 82.12.986; and
32       (B) Is installed and put into regular use 10 years after the
33   effective date of this section.
34       (iii) For a qualifying tenant who leases space within an eligible
35   computer data center, "eligible server equipment" means the original
36   server equipment installed within the space it leases from an
37   eligible computer data center with an exemption certificate on or
38   after 10 years after the effective date of this section, and
39   replacement server equipment. For purposes of this subsection


                                     p. 8                          SB 5414
 1   (6)(h)(iii), "replacement server equipment" means server equipment
 2   that:
 3       (A)(I) Replaces existing server equipment, if the sale or use of
 4   the server equipment to be replaced qualified for an exemption under
 5   this section or RCW 82.12.986 and is installed and put into regular
 6   use before July 1, 2027; or
 7       (II) Replaces existing server equipment in a computer data center
 8   that meets the following requirements: Was ineligible before the
 9   effective date of this section for the exemptions provided under this
10   section and RCW 82.12.986; has been refurbished; and to which a valid
11   exemption certificate applies; and
12       (B) Is installed and put into regular use no later than 12 years
13   after the date of the certificate of occupancy or completion of
14   refurbishment of the computer data center.
15       (i) "Qualifying business" means a business entity that exists for
16   the primary purpose of engaging in commercial activity for profit and
17   that is the owner of an eligible computer data center. The term does
18   not include the state or federal government or any of their
19   departments,   agencies,   and   institutions;   tribal  governments;
20   political subdivisions of this state; or any municipal, quasi-
21   municipal, public, or other corporation created by the state or
22   federal government, tribal government, municipality, or political
23   subdivision of the state.
24       (j) "Qualifying tenant" means a business entity that exists for
25   the primary purpose of engaging in commercial activity for profit and
26   that leases space from a qualifying business within an eligible
27   computer data center. The term does not include the state or federal
28   government or any of their departments, agencies, and institutions;
29   tribal governments; political subdivisions of this state; or any
30   municipal, quasi-municipal, public, or other corporation created by
31   the state or federal government, tribal government, municipality, or
32   political subdivision of the state.
33       (k)(i) "Refurbished" or "refurbishment" means a substantial
34   improvement to an eligible computer data center for which a
35   certificate of occupancy is not issued. Such an improvement must
36   update or modernize servers, server space, ventilation, or power
37   infrastructure in an eligible computer data center.
38       (ii) For a qualifying computer data center to be considered
39   refurbished, the qualifying business must certify, in a form and
40   manner prescribed by the department, that the refurbishment of an
                                     p. 9                          SB 5414
 1   eligible computer data center is complete. The refurbishment is
 2   considered complete on the date that the improved portion of the
 3   computer data center is operationally complete and able to be used
 4   for its intended purpose.
 5       (l) "Server equipment" means the computer hardware located in an
 6   eligible computer data center and used exclusively to provide
 7   electronic data storage and data management services for internal use
 8   by the owner or lessee of the computer data center, for clients of
 9   the owner. For the purposes of this subsection, "electronic data
10   storage and data management services" include, but are not limited
11   to: Providing data storage and backup services, providing computer
12   processing power, hosting enterprise software applications, and
13   hosting websites. The term also includes providing services such as
14   email, web browsing and searching, media applications, and other
15   online services, regardless of whether a charge is made for such
16   services.   "Server   equipment"  also   includes  computer  software
17   necessary to operate the computer hardware. "Server equipment" does
18   not include personal computers, the racks upon which the server
19   equipment is installed, and computer peripherals such as keyboards,
20   monitors, printers, and mice, unless used within the eligible
21   computer data center.
22       (7) This section expires January 1, 2031.


23       NEW SECTION.   Sec. 4.   A new section is added to chapter 82.12
24   RCW to read as follows:
25       (1) An exemption from the tax imposed by RCW 82.12.020 is
26   provided for the use by qualifying businesses or qualifying tenants
27   of eligible server equipment to be installed, without intervening
28   use, in an eligible computer data center, and to the use of labor and
29   services rendered in respect to installing such server equipment. The
30   exemption also applies to the use by a qualifying business or
31   qualifying tenant of eligible power infrastructure, including labor
32   and services rendered in respect to installing, repairing, altering,
33   or improving such infrastructure.
34       (2) The exemption provided in this section does not apply to any
35   person for whom the exemption under section 3 of this act does not
36   apply.
37       (3) The definitions and requirements in section 3 of this act
38   apply to this section.
39       (4) This section expires January 1, 2027.
                                     p. 10                         SB 5414
 1       NEW SECTION.   Sec. 5.   A new section is added to chapter 82.08
 2   RCW to read as follows:
 3       From the effective date of this section, in order to obtain the
 4   exemption provided in section 3 of this act, a qualifying business or
 5   qualifying tenant must certify to the department that the computer
 6   data center receiving an exemption under section 3 of this act is
 7   developed in a way that includes community workforce agreements or
 8   project labor agreements and the payment of area standard prevailing
 9   wages and apprenticeship utilization requirements, provided the
10   following apply:
11       (1) The owner and the prime contractor and all of its
12   subcontractors regardless of tier have the absolute right to select
13   any qualified and responsible bidder for the award of contracts on a
14   specified project without reference to the existence or nonexistence
15   of any agreements between such bidder and any party to such project
16   labor agreement, and only when such bidder is willing, ready, and
17   able to become a party to, signs a letter of assent, and complies
18   with such agreement or agreements, should it be designated the
19   successful bidder; and
20       (2) It is understood that this is a self-contained, stand-alone
21   agreement, and that by virtue of having become bound to such
22   agreement or agreements, neither the project contractor nor the
23   subcontractors are obligated to sign any other local, area, or
24   national agreement.

                                  --- END ---




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