North Carolina provides three sales and use tax exemptions for purchase of the following items related to data centers and their operations:
1. Electricity and support equipment purchased for a “Qualifying Data Center”
2. Electricity and certain business property purchased for an “Eligible Internet Data Center”
3. Computer software at a “Data Center”
“Data Center” is defined as: A facility that provides infrastructure for hosting or data-processing services and is concurrently maintainable. The power and cooling systems serving the computer equipment must include redundant capacity components and multiple distribution paths. Although the facility must have multiple distribution paths serving the computer equipment, a single distribution path may serve the computer equipment at any one time.
Exemption for a Qualifying Datacenter
Purchases of electricity for use at a qualifying data center and the purchase of data center support equipment to be located and used at such a facility is exempt from sales tax.
A “qualifying data center” must meet the following two conditions:
- The Secretary of Commerce must have made a written determination that at least $75 million in private funds has been or will be invested by one or more owners, users or tenants of the data center. Such funds must have been invested within five years of the first real or tangible property investment in the facility. Real and tangible investments in the data center that were made prior to Jan. 1, 2012 may not be included in the investment required.
- The data center must meet county wage standard and health insurance requirements.
“Data center support equipment” is property that is capitalized for tax purposes and used for one of the following purposes:
- Providing service or function included in the business of an owner, user or tenant of the data center;
- The generation, transformation, transmission, distribution or management of electricity, including exterior substations, generators, transformers, unit substations, uninterruptible power supply systems, batteries, power distribution units, remote power panels and other capital equipment for these purposes;
- HVAC and mechanical systems, including chillers, cooling towers, air handlers, pumps and other capital equipment used for these purposes;
- Hardware and software for distributed and mainframe computers and servers, data storage devices, network connectivity equipment and peripheral components and equipment, or
- Providing related computer engineering or computer science research.
Exemption for Eligible Internet Datacenter
Purchases of electricity for use at an eligible internet data center and eligible business property to be located and used at such a facility is exempt from sales tax.
An “eligible internet data center” is defined as a data center that satisfies each of the following conditions:
- The Secretary of Commerce must have made a written determination that at least $250 million in private funds has been or will be invested in real property and/or eligible business property at the facility. The investment must take place within five years of the commencement of construction of the facility.
- The facility is used primarily by a business engaged in software publishing included in industry 511210 of the North American Industry Classification System (NAICS) or an internet activity included in NAICS industry 519130.
- The facility is located in a Tier 1 or Tier 2 county.
- The facility comprises a structure or series of structures located or to be located on (1) a single parcel of land or (2) contiguous parcels of land that are commonly owned or owned by affiliation with the operator of that facility.
Exemption for Computer Software
Computer software that is sold to a person who operates a data center and that is used within the data center is exempt from sales tax. Computer software is defined as a set of coded instructions designed to cause a computer or automatic data-processing equipment to perform a task.
The N.C. Department of Commerce annually ranks the state’s 100 counties based on economic well-being and assigns each a tier designation. The 40 most distressed counties are designated as Tier 1, the next 40 as Tier 2 and the 20 least distressed as Tier 3. This tier system is incorporated into the Eligible Internet Datacenter Sales Tax exemption to encourage economic activity in the less prosperous areas of the state. For more information about county tier designations, visit our County Development Tier Designations page.
The Economic Development Partnership of North Carolina does not award or administer this incentive. All economic development incentives are awarded and administered by the North Carolina Department of Commerce.