Sales to Datacenters Exempt from Tax in South Carolina

Wednesday, June 13th, 2012

South Carolina

The South Carolina Legislature recently passed an amendment to S.C. Code Ann. sec. 12-36-2120, providing for an exemption from sales and use tax on certain items and utilities purchased for use in datacenters (South Carolina Legislature House Bill No. 3720). A "datacenter" is a new or existing facility at a single location in the state "(i) that provides infrastructure for hosting or data processing services and that has power and cooling systems that are created and maintained to be concurrently maintainable and to include redundant capacity components and multiple distribution paths serving the computer equipment at the facility. 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; (ii)(a) where a taxpayer invests at least fifty million dollars in real or personal property or both over a five year period; or (b) where one or more taxpayers invests a minimum aggregate capital investment of at least seventy-five million dollars in real or personal property or both over a five year period; (iii) where a taxpayer creates and maintains at least twenty-five full-time jobs at the facility with an average cash compensation level of one hundred fifty percent of the per capita income of the State or of the county in which the facility is located, whichever is lower, according to the most recently published data available at the time the facility is certified by the Department of Commerce; (iv) where the jobs created pursuant to subitem (B)(5)(iii) are maintained for three consecutive years after a facility with the minimum capital investment and number of jobs has been certified by the Department of Commerce; and (v) which is certified by the Department of Commerce pursuant to subitem (D)(1)under such policies and procedures as promulgated by the Department of Commerce."

Under the new exemption, purchases of computers, computer equipment, hardware and software are exempt from tax. Replacement purchases of these items are also covered under the exemption. Additionally, purchases of electricity used by the datacenter are also exempt from tax.

If the datacenter no longer qualifies as a certified facility, it will be liable for any tax due on the items purchased that were previously covered under the exemption. If the datacenter qualifies as a certified facility but is unable to maintain the requisite number of jobs, it will no longer be able to purchase computer items exempt from tax and will only be allowed a certain percentage of the electricity exemption. To be eligible for the exemption, which went into effect on June 7, 2012, a datacenter must be certified by the Department of Commerce before January 1, 2032. All data centers that are certified by December 31, 2031 will remain certified for an additional ten year period. At the end of that period, the exemption will be repealed.

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