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2016 SESSION
16101740DBe it enacted by the General Assembly of Virginia:
1. That §§ 58.1-422.2 and 58.1-609.3 of the Code of Virginia are amended and reenacted as follows:
§ 58.1-422.2. Apportionment; taxpayers with enterprise data center operations.
A. For taxable years beginning on or after July 1, 2016, the Virginia taxable income of taxpayers with enterprise data center operations, excluding income allocable under § 58.1-407, shall be apportioned within and without the Commonwealth as follows:
1. From July 1, 2016, until July 1, 2017, by multiplying such income by a fraction, the numerator of which is the property factor plus the payroll factor plus quadruple the sales factor and the denominator of which is six, except that when the sales factor does not exist, the denominator of the fraction shall be the number of existing factors, and when the sales factor exists but the payroll factor or property factor does not exist, the denominator of the fraction shall be the number of existing factors plus three; and
2. From July 1, 2017, and thereafter, by multiplying such income by the sales factor.
B. As used in this section:
"Enterprise data center operations" means operations that (i) physically house information technology equipment such as servers, switches, routers, data storage devices, or related equipment; (ii) manage and process digital data and information to provide application services or management for data processing, such as web hosting, Internet, intranet, telecommunication, and information technology; (iii) are developed and owned by the taxpayer; and (iv) are operated by the taxpayer or any of its affiliates substantially for their own use.
C. The provisions of this section requiring an apportionment formula for taxpayers with enterprise data center operations shall apply only to taxpayers that have entered into a memorandum of understanding with the Virginia Economic Development Partnership Authority on or after July 1, 2015, to make a new capital investment of at least $150 million in an enterprise data center in the Commonwealth on or after such date. The apportionment formula under this section shall apply to such taxpayers beginning with the taxable year for which the Virginia Economic Development Partnership Authority provides a written certification to the taxpayer that the new capital investment has been completed.
D. The General Assembly of Virginia finds that capital investment in data centers is essential to the continued fiscal health of the Commonwealth. In this modern economy, states often compete for quality data centers. Accordingly, the provisions of subsection C relating to capital investment in enterprise data centers are integral to the purpose of this section. If any provision of this section is for any reason held to be invalid or unconstitutional by the decision of a court of competent jurisdiction, that provision shall not be deemed severable.
E. Beginning January 1, 2016, this section shall not apply to any enterprise data center operations that (i) are first located in Virginia on or after January 1, 2016, on property that is not zoned for industrial use, are within one-third of a mile from an interstate highway, and require use of a 150-kilovolt or greater electrical transmission line, where any part of such line is located above ground within 1.5 miles of the data center, or (ii) are located in Virginia prior to January 1, 2016, on property that is not zoned for industrial use, are within one-third of a mile from an interstate highway, and require use of a 150-kilovolt or greater electrical transmission line for the first time on or after January 1, 2016, where any part of such line is located above ground within 1.5 miles of the enterprise data center operations.
§ 58.1-609.3. Commercial and industrial exemptions.
The tax imposed by this chapter or pursuant to the authority granted in §§ 58.1-605 and 58.1-606 shall not apply to the following:
1. Personal property purchased by a contractor which is used solely in another state or in a foreign country, which could be purchased by such contractor for such use free from sales tax in such other state or foreign country, and which is stored temporarily in Virginia pending shipment to such state or country.
2. (i) Industrial materials for future processing, manufacturing, refining, or conversion into articles of tangible personal property for resale where such industrial materials either enter into the production of or become a component part of the finished product; (ii) industrial materials that are coated upon or impregnated into the product at any stage of its being processed, manufactured, refined, or converted for resale; (iii) machinery or tools or repair parts therefor or replacements thereof, fuel, power, energy, or supplies, used directly in processing, manufacturing, refining, mining or converting products for sale or resale; (iv) materials, containers, labels, sacks, cans, boxes, drums or bags for future use for packaging tangible personal property for shipment or sale; or (v) equipment, printing or supplies used directly to produce a publication described in subdivision 3 of § 58.1-609.6 whether it is ultimately sold at retail or for resale or distribution at no cost. Machinery, tools and equipment, or repair parts therefor or replacements thereof, shall be exempt if the preponderance of their use is directly in processing, manufacturing, refining, mining or converting products for sale or resale. The provisions of this subsection do not apply to the drilling or extraction of oil, gas, natural gas and coalbed methane gas. In addition, the exemption provided herein shall not be applicable to any machinery, tools, and equipment, or any other tangible personal property used by a public service corporation in the generation of electric power, except for raw materials that are inputs to production of electricity, including fuel.
3. Tangible personal property sold or leased to a public service corporation engaged in business as a common carrier of property or passengers by railway, for use or consumption by such common carrier directly in the rendition of its public service.
4. Ships or vessels, or repairs and alterations thereof, used or to be used exclusively or principally in interstate or foreign commerce; fuel and supplies for use or consumption aboard ships or vessels plying the high seas, either in intercoastal trade between ports in the Commonwealth and ports in other states of the United States or its territories or possessions, or in foreign commerce between ports in the Commonwealth and ports in foreign countries, when delivered directly to such ships or vessels; or tangible personal property used directly in the building, conversion or repair of the ships or vessels covered by this subdivision. This exemption shall include dredges, their supporting equipment, attendant vessels, and fuel and supplies for use or consumption aboard such vessels, provided the dredges are used exclusively or principally in interstate or foreign commerce.
5. Tangible personal property purchased for use or consumption directly and exclusively in basic research or research and development in the experimental or laboratory sense.
6. Tangible personal property sold or leased to an airline operating in intrastate, interstate or foreign commerce as a common carrier providing scheduled air service on a continuing basis to one or more Virginia airports at least one day per week, for use or consumption by such airline directly in the rendition of its common carrier service.
7. Meals furnished by restaurants or food service operators to employees as a part of wages.
8. Tangible personal property including machinery and tools, repair parts or replacements thereof, and supplies and materials used directly in maintaining and preparing textile products for rental or leasing by an industrial processor engaged in the commercial leasing or renting of laundered textile products.
9. Certified pollution control equipment and facilities as defined in § 58.1-3660, except for any equipment that has not been certified to the Department of Taxation by a state certifying authority pursuant to such section.
10. Parts, tires, meters and dispatch radios sold or leased to taxicab operators for use or consumption directly in the rendition of their services.
11. High speed electrostatic duplicators or any other duplicators which have a printing capacity of 4,000 impressions or more per hour purchased or leased by persons engaged primarily in the printing or photocopying of products for sale or resale.
12. From July 1, 1994, and ending July 1, 2016, raw materials, fuel, power, energy, supplies, machinery or tools or repair parts therefor or replacements thereof, used directly in the drilling, extraction, or processing of natural gas or oil and the reclamation of the well area. For the purposes of this section, the term "natural gas" shall mean "gas," "natural gas," and "coalbed methane gas" as defined in § 45.1-361.1. For the purposes of this section, "drilling," "extraction," and "processing" shall include production, inspection, testing, dewatering, dehydration, or distillation of raw natural gas into a usable condition consistent with commercial practices, and the gathering and transportation of raw natural gas to a facility wherein the gas is converted into such a usable condition. Machinery, tools and equipment, or repair parts therefor or replacements thereof, shall be exempt if the preponderance of their use is directly in the drilling, extraction, refining, or processing of natural gas or oil for sale or resale, or in well area reclamation activities required by state or federal law.
13. Beginning July 1, 1997, (i) the sale, lease, use, storage, consumption, or distribution of an orbital or suborbital space facility, space propulsion system, space vehicle, satellite, or space station of any kind possessing space flight capability, including the components thereof, irrespective of whether such facility, system, vehicle, satellite, or station is returned to this Commonwealth for subsequent use, storage or consumption in any manner when used to conduct spaceport activities; (ii) the sale, lease, use, storage, consumption or distribution of tangible personal property placed on or used aboard any orbital or suborbital space facility, space propulsion system, space vehicle, satellite or space station of any kind, irrespective of whether such tangible personal property is returned to this Commonwealth for subsequent use, storage or consumption in any manner when used to conduct spaceport activities; (iii) fuels of such quality not adapted for use in ordinary vehicles, being produced for, sold and exclusively used for space flight when used to conduct spaceport activities; (iv) the sale, lease, use, storage, consumption or distribution of machinery and equipment purchased, sold, leased, rented or used exclusively for spaceport activities and the sale of goods and services provided to operate and maintain launch facilities, launch equipment, payload processing facilities and payload processing equipment used to conduct spaceport activities.
For purposes of this subdivision, "spaceport activities" means activities directed or sponsored at a facility owned, leased, or operated by or on behalf of the Virginia Commercial Space Flight Authority.
The exemptions provided by this subdivision shall not be denied by reason of a failure, postponement or cancellation of a launch of any orbital or suborbital space facility, space propulsion system, space vehicle, satellite or space station of any kind or the destruction of any launch vehicle or any components thereof.
14. Semiconductor cleanrooms or equipment, fuel, power, energy, supplies, or other tangible personal property used primarily in the integrated process of designing, developing, manufacturing, or testing a semiconductor product, a semiconductor manufacturing process or subprocess, or semiconductor equipment without regard to whether the property is actually contained in or used in a cleanroom environment, touches the product, is used before or after production, or is affixed to or incorporated into real estate.
15. Semiconductor wafers for use or consumption by a semiconductor manufacturer.
16. Railroad rolling stock when sold or leased by the manufacturer thereof.
17. Computer equipment purchased or leased on or before June 30, 2011, used in data centers located in a Virginia locality having an unemployment rate above 4.9 percent for the calendar quarter ending November 2007, for the processing, storage, retrieval, or communication of data, including but not limited to servers, routers, connections, and other enabling hardware when part of a new investment of at least $75 million in such exempt property, when such investment results in the creation of at least 100 new jobs paying at least twice the prevailing average wage in that locality, so long as such investment was made in accordance with a memorandum of understanding with the Virginia Economic Development Partnership Authority entered into or amended between January 1, 2008, and December 31, 2008. The exemption shall also apply to any such computer equipment purchased or leased to upgrade, add to, or replace computer equipment purchased or leased in the initial investment. The exemption shall not apply to any computer software sold separately from the computer equipment, nor shall it apply to general building improvements or fixtures.
18. (Effective until June 30, 2020) Beginning July 1, 2010,
and ending June 30, 2020, computer equipment or enabling software purchased or
leased for the processing, storage, retrieval, or communication of data,
including but not limited to servers, routers, connections, and other enabling
hardware, including chillers and backup generators used or to be used in the
operation of the equipment exempted in this paragraph, provided that such
computer equipment or enabling software is purchased or leased for use in a
data center that (i) is located in a Virginia locality, (ii) results in a new
capital investment on or after January 1, 2009, of at least $150 million, and
(iii) results in the creation on or after July 1, 2009, of at least 50 new jobs
by the data center operator and the tenants of the data center, collectively,
associated with the operation or maintenance of the data center provided that
such jobs pay at least one and one-half 1.5 times the prevailing
average wage in that locality. The requirement of at least 50 new jobs is
reduced to 25 new jobs if the data center is located in a locality that has an
unemployment rate for the preceding year of at least 150 percent of the average
statewide unemployment rate for such year as determined by the Virginia
Economic Development Partnership or is located in an enterprise zone. This
exemption applies to the data center operator and the tenants of the data
center if they collectively meet the requirements listed in this section. Prior
to claiming such exemption, any qualifying person claiming the exemption,
including a data center operator on behalf of itself and its tenants, must
enter into a memorandum of understanding with the Virginia Economic Development
Partnership Authority that at a minimum provides the details for determining
the amount of capital investment made and the number of new jobs created, the
timeline for achieving the capital investment and new job goals, the repayment
obligations should those goals not be achieved, and any conditions under which
repayment by the qualifying data center or data center tenant claiming the
exemption may be required. In addition, the exemption shall apply to any such
computer equipment or enabling software purchased or leased to upgrade,
supplement, or replace computer equipment or enabling software purchased or
leased in the initial investment. The exemption shall not apply to any other
computer software otherwise taxable under Chapter 6 of Title 58.1 that is sold
or leased separately from the computer equipment, nor shall it apply to general
building improvements or other fixtures. Beginning January 1, 2016, the
exemption shall not apply to any data
center that (i) is first located in
Virginia on or after January
1, 2016, on
property that is not zoned for industrial use, is
within one-third of a mile from an
interstate highway, and requires
use of a 150-kilovolt
or greater electrical transmission line, where any part
of such line is located above ground within 1.5 miles of the
data center, or (ii) is
located in Virginia prior to January
1, 2016, on property that is not
zoned for industrial use, is
within one-third of a mile from an
interstate highway, and requires
use of a 150-kilovolt
or greater electrical transmission line for the first time on or
after January 1, 2016, where any
part of such line is located above ground within 1.5 miles of the
data center.
18. (Effective June 30,
2020) Beginning July 1, 2010, and ending June 30, 2020, computer equipment or enabling
software purchased or leased for the processing, storage, retrieval, or
communication of data, including but not limited to servers, routers,
connections, and other enabling hardware, including chillers and backup
generators used or to be used in the operation of the equipment exempted in
this paragraph, provided that such computer equipment or enabling software is
purchased or leased for use in a data center that (i) is located in a Virginia
locality, (ii) results in a new capital investment on or after January 1, 2009,
of at least $150 million, and (iii) results in the creation on or after July 1,
2009, of at least 50 new jobs associated with the operation or maintenance of
the data center provided that such jobs pay at least one and one-half times the
prevailing average wage in that locality. The requirement of at least 50 new
jobs is reduced to 25 new jobs if the data center is located in a locality that
has an unemployment rate for the preceding year of at least 150 percent of the
average statewide unemployment rate for such year as determined by the Virginia
Economic Development Partnership or is located in an enterprise zone. Prior to
claiming such exemption, any qualifying person claiming the exemption must
enter into a memorandum of understanding with the Virginia Economic Development
Partnership Authority that at a minimum provides the details for determining
the amount of capital investment made and the number of new jobs created, the
timeline for achieving the capital investment and new job goals, the repayment
obligations should those goals not be achieved, and any conditions under which
repayment by the qualifying person claiming the exemption may be required. In
addition, the exemption shall apply to any such computer equipment or enabling
software purchased or leased to upgrade, supplement, or replace computer
equipment or enabling software purchased or leased in the initial investment.
The exemption shall not apply to any other computer software otherwise taxable
under Chapter 6 of Title 58.1 that is sold or leased separately from the
computer equipment, nor shall it apply to general building improvements or
other fixtures.