Department of Revenue
Revenue Notice # 12-11: Sales Tax – Exemptions – Qualified Data Centers
Introduction
Sales tax exemptions for certain purchases for use in a “qualified data center” were
enacted during the 2011 Special Session, amending Minnesota Statutes, sections 297 A.68 (new
subdivision 42), and 297A.75, subdivisions 1 (new clause (16)), 2 and 3.
Purchases of “enterprise information technology equipment and computer software for
use in a qualified data center,” including “enterprise information technology equipment and
computer software that is purchased to replace or upgrade enterprise information technology
equipment and computer software in a qualified data center,” are exempt. However, the
purchaser must first pay the sales tax on the equipment and software and then, after June 30,
2013, the “owner of the business” may apply for a refund of the sales tax paid on the purchases.
To be exempt, the sales and purchases of the equipment and software must be made after June
30, 2012. The exemption ends either 20 years from the date of the first purchase of “enterprise
information technology equipment and computer software for use in a qualified data center” or
by July 1, 2042, whichever is earlier.
Electricity’ used or consumed in the operation of the qualified data center also is exempt,
but as an upfront exemption. To be exempt, the sales and purchases of the electricity must be
made after June 30, 2012, and by July 1,2042.
This Revenue Notice sets out the department’s positions on what is required by taxpayers
to qualify for these exemptions.
Department Positions
I. Total cost and 24-month period.
Background: The definition of “qualified data center” in Minnesota Statutes, section
297 A.68, subdivision 42, paragraph (c)(1)’ provides that the “total cost of construction or
refurbishment, investment in enterprise information technology equipment, and computer
software is at least $50,000,000 within a 24-month period.”
Positions:
A. The 24-month period must begin on a date that is after June 30, 2012. In determining
if the $50,000,000 threshold has been met, only construction and refurbishment costs incurred
after June 30, 2012, and purchases of enterprise information technology equipment and computer
software made after June 30, 2012, will be included.
B. The months of the 24-month period must be consecutive months.
C. The cost ofland acquisition, if any, is not included in the $50,000,000.
D. A qualified data center may include one or more businesses using enterprise
information technology equipment. If more than one such business is located at the facility,
either as co-owners or tenants of the building or buildings that constitute the facility, the
following applies:
1. Their combined total cost of construction or refurbishment, investment in
enterprise information technology equipment, and computer software must be at least
$50,000,000 within a 24-month period.
2. The 24-month period for all co-owners or tenants begins when the initial
purchase and investment is made by any of the co-owners or tenants.
II. Qualities and square footage.
Background: A requirement of a “qualified data center” is that the facility have the
following qualities:
• The facility must be used to house “enterprise information technology equipment,” as
that term is defined in Minnesota Statutes, section 297 A.68, subdivision 42, paragraph
(d); and must have the characteristics required by Minnesota Statutes, section 297 A.68,
subdivision 42, paragraph (c)(3), which are “(i) uninterruptible power supplies, generator
backup power, or both; (ii) sophisticated fire suppression and prevention systems; and
(iii) enhanced security … ”
• The facility must be at least 30,000 square feet in the aggregate, as described in
Minnesota Statutes, section 297 A.68, subdivision 42, paragraph (c)(1); and, for purposes
of meeting the square footage requirement, may include the following spaces or facilities
in support of the operation of the enterprise information technology equipment: the
supporting office or meeting space, and mechanical and other support facilities, pursuant
to Minnesota Statutes, section 297 A.68, subdivision 42, paragraph ( c).
Positions:
A. The square footage must be documented and the computation of the square footage
must follow industry standards.
B. The mechanical and other support facilities are “in support ofthe operation of the
enterprise information technology equipment” if their function is to control, direct, maintain,
manage, monitor, regulate or service the enterprise information technology equipment. If so,
their square footage may be included to determine if the facility has at least 30,000 square feet.
C. The office or meeting spaces are “in support of the operation of the enterprise
information technology equipment” if their function is to control, direct, maintain, manage,
monitor, regulate, or service the enterprise information technology equipment, or to provide
training, discussions, performance evaluation and enhancement, and other similar functions to
better provide for the operation of the enterprise information technology equipment. If so, their
square footage may be included to determine ifthe facility has at least 30,000 square feet.
III. Substantially refurbished.
Background: An additional requirement of a “qualified data center” is that the facility
must be “constructed or substantially refurbished after June 30, 2012.” The term “substantially
refurbished” is defined to mean “that at least 30,000 square feet has been rebuilt or modified,” as
described in Minnesota Statutes, section 297 A.68, subdivision 42, paragraph (c )(2).
Positions:
A. The terminology “refurbished” and “rebuilt or modified” both mean that the facility
has been repaired, remodeled or altered. This refurbishment may include, but is not limited to,
upgrading, expanding or retrofitting enterprise information technology equipment and its
supporting infrastructure and systems, as well as significant interior or exterior structural
modification.
B. Making cosmetic changes to the interior or exterior appearance of a building does not
constitute a “substantially refurbished” facility. Space which has been changed cosmetically and
has not otherwise been repaired, remodeled or altered will not be included in the minimum
30,000 square feet for determining ifthe facility has been substantially refurbished.
C. The substantial refurbishment must encompass one or more of the descriptions
provided in Minnesota Statutes, section 297 A.68, subdivision 42, paragraphs ( c) and (d), as
noted above under “II. Qualities and square footage.”
D. The resulting facility must meet all of the statutory requirements of a qualified data
center, as provided in Minnesota Statutes, section 297 A.68, subdivision 42.
E. Example of what may be considered “substantial refurbishment”:
A business installs 15,000 square feet of a raised floor to meet the specifications of a data
center in one building of a facility on one parcel of land in Minnesota. Additionally, on the
facility’s current data center building located on a contiguous parcel, the business installs a new
roof covering 20,000 square feet and an updated uninterruptible power supply covering 10,000
square feet. A total of 45,000 square footage of the facility has been rebuilt or modified, and is
considered substantially refurbished.
F. Examples of what would not be considered “substantial refurbishment”:
Example 1: An existing facility paints or carpets 10,000 square feet of the floor to update
its appearance, and this area is not otherwise rebuilt or modified. It also installs 20,000 square
feet of a raised floor in another area to meet the specifications of the data center. No other
modifications are made. The square footage of the area whose cosmetic appearance has been
updated, whether the interior or exterior of a facility building, for example, by painting or
carpeting, is not included in the definition of “substantial refurbishment.” In this example, only
20,000 square feet (the raised floor) has been rebuilt or modified, not enough square footage to
meet the definition of “substantially refurbished.”
Example 2: The facility comprises two buildings that consist of 60,000 square feet in the
aggregate, and that are located on a single parcel. The facility has office spaces and meeting
spaces that have a combined 30,000 square feet, for which either the ceilings or the floors need
to be rebuilt or modified to meet the specifications of the data center. The remaining 30,000
square feet will remain unaltered. Of the 30,000 square feet of office and meeting space, 2,000
square feet is not used by staff in support of the operation of the enterprise information
technology equipment, but is made available for the training and meeting needs of entities other
than the data center. In this example, only 28,000 square feet of what is being refurbished meets
the requirement found above under “II. Qualities and square footage,” Position C, not enough
square footage to meet the definition of “substantially refurbished.”
IV. Electricity exemption.
Background: Minnesota Statutes, section 297 A.68, subdivision 42, paragraph (b),
provides that “electricity used or consumed in the operation of a qualified data center is exempt.”
Electricity is “used or consumed in the operation of a qualified data center” if the electricity is
used in the operation of one or more of the required characteristics set forth in Minnesota
Statutes, section 297 A.68, subdivision 42, paragraph (c )(3), (i) through (iii); used to operate
enterprise information technology equipment as defined in paragraph (d); or used in office and
meeting spaces, and mechanical and other support facilities in the facility, in support of the
operation of the enterprise information technology equipment.
Positions:
A. The business that pays for the electricity used or consumed in the operation of the data
center may purchase it exempt.
B. While the use of separate meters that solely measure the electricity for qualifying uses
and spaces is preferable, the Department will accept a valid energy audit conducted by a
qualified energy audit engineer or consultant, or other reasonable methods, to determine the
portion of the total electricity that is used for qualifying uses and spaces at the facility.
C. When the business provides a fully completed exemption certificate, Form ST3, to its
utility provider, it must indicate on the form the percentage ofthe total electricity that qualifies
for the exemption.
V. Software.
Background: Purchases of “computer software for use in a qualified data center” are
exempt under Minnesota Statutes, section 297A.68, subdivision 42, paragraph (a). This
exemption includes computer software purchased to replace or upgrade computer software in a
qualified data center.
Positions:
A. Prewritten computer software. The term “computer software” in Minnesota
Statutes, section 297 A.68, subdivision 42, refers to “prewritten computer software,” since
customized computer software is already exempt. Only prewritten (also known as “canned”)
computer software is otherwise subject to sales tax, pursuant to Minnesota Statutes, section
297 A.61, subdivision 3, paragraph (t), which provides “A sale and a purchase includes the
transfer for a consideration of prewritten computer software whether delivered
electronically, by load and leave, or otherwise,” and subdivision 10, which includes
prewritten computer software in the definition of “tangible personal property.” See
Minnesota Statutes, section 297A.61, subdivisions 16a through 17b for relevant definitions.
The exemption for computer software for use in a data center includes licenses to use the
computer software.
B. Software maintenance contracts. The exemption for purchases of computer
software, including software that replaces or upgrades computer software in a qualifying data
center, does not include purchases of maintenance contracts sold in connection with the sale of
prewritten computer software, even if the contract provides that the purchaser will be entitled to
receive “upgrades or enhancements” as that term is defined in Minnesota Rules, Part
8130.9910, subpart 1, item G. Instead, the tax treatment of software maintenance contracts
remains the same as described in Minnesota Rules, Part 8130.9910, subpart 2.
VI. Refunds.
Background: As provided in Minnesota Statutes, section 297 A.68, subdivision 42,
paragraph (a), sales tax on purchases of enterprise information technology equipment and
computer software for use in a qualified data center must be paid as if the sales tax rate applied,
and then be refunded after June 30,2013.
• Processing claims. Pursuant to Minnesota Statutes, section 297 A. 75, subdivision 3, the
statute of limitation and refund provisions of sections 289AAO and 289A.50 apply to
refund requests for qualifying purchases. The statute of limitations for filing a refund
claim is generally three-and-one-halfyears from the due date of the return.
• Owner of qualified business. Under Minnesota Statutes, section 297 A. 75, subdivision 2,
clause (7), and subdivision 3, paragraph (a), only “the owner of the qualifying business”
may apply for a refund equal to the sales tax paid on the gross receipts of the enterprise
information technology equipment and computer software for use in the qualified data
center, and “if the tax was paid by a contractor, subcontractor, or builder,” then that
person “must furnish to the refund applicant a statement including the cost of the exempt
items and the taxes paid on the items.”
Positions:
A. For purposes of processing the refund claim, the department will presume the sales tax
was reported on a sales tax return for the month of the invoice date.
B. The “owner of the qualifying business” is one of the following:
1. Where the qualified data center is used to house “enterprise information
technology equipment” which is owned by one person, that person is the “owner of the
qualifying business” and may apply for a refund of the tax paid on the enterprise information
technology equipment and related software.
2. Where the qualified data center is used to house “enterprise information
technology equipment,” where different enterprise information technology equipment is owned
by different persons, each person is the “owner of the qualifying business” for purposes of
applying for a refund of the tax paid on the enterprise information technology equipment and
related software that are owned by that person.
Publication Date: NOV 1 3 2012
——————–
Susan Von Masch, Assistant Commissioner
for Tax Policy and External Relations


Leave a Reply