SENATE BILL
55th legislature - STATE OF NEW MEXICO - first session, 2021
INTRODUCED BY
Michael Padilla
AN ACT
RELATING TO TAXATION; PROVIDING GROSS RECEIPTS TAX AND COMPENSATING TAX DEDUCTIONS FOR DATA CENTERS; CREATING A SPECIAL METHOD OF VALUATION FOR PROPERTY TAX PURPOSES FOR CERTAIN DATA CENTER PROPERTY.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF NEW MEXICO:
SECTION 1. A new section of the Gross Receipts and Compensating Tax Act is enacted to read:
"[NEW MATERIAL] DEDUCTION--GROSS RECEIPTS--COMPENSATING TAX--DATA CENTERS.--
A. Receipts from the sale or lease of data center equipment to the owner or operator of, or a qualified co-location tenant in, a qualified data center may be deducted from gross receipts if:
(1) the owner, operator or qualified co-location tenant delivers a data center deduction nontaxable transaction certificate to the seller or lessor; and
(2) the eligible costs of the sale or lease are incurred during the period beginning on the date development of the qualified data center begins and ending thirty years after the taxpayer is issued a data center deduction nontaxable transaction certificate.
B. The value of eligible costs to the owner or operator of, or a qualified co-location tenant in, a qualified data center may be deducted in computing compensating tax due if:
(1) the owner, operator or qualified co-location tenant holds a valid data center deduction nontaxable transaction certificate issued by the department; and
(2) the eligible costs are incurred during the period beginning on the date development of the qualified data center begins and ending thirty years after the owner, operator or qualified co-location tenant is issued the data center deduction nontaxable transaction certificate.
C. The deduction provided for by this section may be referred to as the "data center deduction". The purpose of the data center deduction is to encourage the construction and development of qualified data centers in New Mexico.
D. A taxpayer allowed a data center deduction shall report the amount of the data center deduction separately and as required by the department. A taxpayer that applies the data center deduction in computing compensating tax due shall separately report each eligible cost for which the data center deduction is taken.
E. To receive the data center deduction, a taxpayer shall apply to the economic development department for a data center deduction certificate of eligibility that entitles the taxpayer to receive a data center deduction nontaxable transaction certificate issued by the taxation and revenue department. The taxpayer is eligible for the data center deduction certificate of eligibility if the taxpayer is the owner or operator of, or a qualified co-location tenant in a data center for which the taxpayer or the taxpayer and one or more other taxpayers agree to expend at least twenty-five million dollars ($25,000,000) in eligible costs for the data center during the period beginning ninety days before the taxpayer applies for the data center deduction certificate of eligibility and ending five years after that date.
F. Upon receiving a complete application for a data center deduction certificate of eligibility from a taxpayer, the economic development department shall verify whether the taxpayer qualifies to receive the certificate and:
(1) if so, issue the taxpayer the data center deduction certificate of eligibility within sixty days after receiving the application; or
(2) if not, respond to the taxpayer in writing with the reason or reasons the taxpayer does not qualify. If the economic development department fails in issuing that response within sixty days after receiving the application, the taxation and revenue department shall deem the taxpayer's application approved and promptly issue to the taxpayer a data center deduction nontaxable transaction certificate.
G. A taxpayer allowed a deduction pursuant to this section shall report the amount of the deduction separately in a manner required by the taxation and revenue department.
H. The validity of a data center deduction certificate of eligibility and of a data center deduction nontaxable transaction certificate is not altered by transfer to a subsequent owner, operator or qualified co-location tenant of the qualified data center associated with the data center deduction certificate of eligibility or data center deduction nontaxable transaction certificate.
I. The economic development department and the taxation and revenue department shall protect from public disclosure the proprietary business information contained in an application for a data center deduction certificate of eligibility. The economic development department may publicly disclose the name of a qualified data center associated with a data center deduction certificate of eligibility.
J. The economic development department may revoke the data center deduction certificate of eligibility held by a taxpayer that owns, operates or is a co-location tenant in a qualified data center if the taxpayer fails to make the expenditures outlined in Subsection E of this section. The economic development department may require such a taxpayer, other than a qualified co-location tenant, to remit to the taxation and revenue department the full amount of the qualified data center deductions taken by the taxpayer unless the taxpayer demonstrates to the economic development department that the taxpayer made expenditures for eligible costs to the extent feasible, in which case the economic development department shall conduct a public hearing to determine the portion of the amount of deductions taken by the taxpayer that the taxpayer must repay. In determining that portion, the economic development department shall consider the taxpayer's performance in making the expenditures outlined in Subsection E of this section and the degree to which circumstances beyond the taxpayer's control caused the taxpayer's failure to make the expenditures. The taxpayer shall remit to the taxation and revenue department within one hundred eighty days after the determination is made the amount that, in accordance with this subsection, the economic development department determines is owed by the taxpayer.
K. The taxation and revenue department shall compile an annual report on the data center deduction that includes the number of taxpayers that claimed the data center deduction, the aggregate amount of the data center deductions claimed and other information necessary to evaluate the effectiveness of the data center deduction. The taxation and revenue department shall present the report to the revenue stabilization and tax policy committee and the legislative finance committee with an analysis of the effectiveness and cost of the data center deduction and whether the data center deduction is performing the purpose for which it was created.
L. As used in this section:
(1) "data center" means one or more contiguous or noncontiguous tracts of land in New Mexico and the structures and personal property on that land, if any:
(a) that, regardless of prior use, are or will be used predominantly to house working computer servers;
(b) that have or will have an uninterruptible energy supply, generator backup power, cooling systems, towers or other temperature control infrastructure; and
(c) whose: 1) construction or development begins on or after July 1, 2021; or 2) reconstruction, redevelopment or expansion begins on or after July 1, 2021;
(2) "data center equipment" means purchased or leased, tangible or intangible consumables, equipment or software, whether affixed to or incorporated into real property, that is essential to the operation of a qualified data center and used or intended for use in the processing, storage, retrieval or communication of data; "data center equipment" includes the installation, refreshment, replacement and upgrade of that equipment or software. As used in this paragraph, "equipment" includes:
(a) component parts, servers, routers, connections, monitoring systems, security systems, enabling machinery, enabling equipment, enabling hardware, chillers and backup generators;
(b) equipment necessary for the transformation, generation, distribution or management of electricity required to operate computer server equipment, including solar generation equipment, wind generation equipment, geothermal generation equipment, ice bank cooling equipment, geothermal cooling equipment, evaporative cooling equipment, substations, generators, uninterruptible energy equipment, supplies, conduit, fuel piping, fuel storage, cabling, duct banks, switches, switchboards, batteries and testing equipment;
(c) equipment necessary to cool and maintain a controlled environment for the operation of computer servers and other components of a qualified data center, including mechanical equipment, refrigerant piping, fuel piping, fuel storage, adiabatic cooling systems, free cooling systems, cooling towers, water softeners, air handling units, indoor direct exchange units, fans, ducting and filters;
(d) water conservation systems, including facilities or mechanisms designed to collect, conserve or reuse water;
(e) equipment associated with computer server equipment, chassis, networking equipment, switches, racks, fiber-optic and copper cabling, trays and conduit;
(f) the conduit, ducting, fiber-optic and copper cabling located outside the qualified data center and directly related to connecting qualified data center locations;
(g) modular data centers and preassembled components, including those used in the manufacture of a modular data center; and
(h) electricity, fuels and water;
(3) "eligible cost":
(a) means an expenditure for the development, acquisition, construction or operation of a qualified data center; and
(b) includes the cost of: 1) site improvements to the qualified data center; 2) data center equipment for the qualified data center; and 3) permitting, site characterization, assessment, engineering and design fees directly and exclusively associated with the qualified data center;
(4) "entity" means an individual, estate, trust, receiver, cooperative association, corporation, company, firm, partnership, limited liability company, limited liability partnership or joint venture;
(5) "owner" means an entity or an affiliate of the entity that holds fee simple title or a long-term ground lease to a qualified data center;
(6) "operator" means an entity, other than an owner or a qualified co-location tenant, but including a licensed property management company and a property lessor, or an affiliate of the entity, that:
(a) operates a qualified data center in accordance with a lease or other type of contract with the owner or lessor of the qualified data center; and
(b) is responsible for the control, oversight or maintenance of the qualified data center;
(7) "qualified co-location tenant" means an entity that contracts with the owner or operator of a qualified data center to use or occupy all or part of the qualified data center for at least two years; and
(8) "qualified data center" means a data center that has received a certificate of eligibility."
SECTION 2. A new section of Chapter 7, Article 36 NMSA 1978 is enacted to read:
"[NEW MATERIAL] SPECIAL METHOD OF VALUATION--PROPERTY THAT IS A DATA SYSTEM PLANT OR PART OF A DATA CENTER SYSTEM.--
A. The value of property that is a data system plant or is part of a data center system and is subject to valuation for property taxation purposes shall be valued at five percent of the original cost of the data system plant or the part of the data center system, regardless of age of the data system plant or part of the data center system.
B. As used in this section:
(1) "data system plant" means all tangible property located in this state used or useful for the provision of data center services as reflected by the uniform system of accounting in use by the taxpayer; and
(2) "data center system" means a tangible or virtual system for the storage, processing and distribution of data and information by the use of electronic, magnetic or optical means or any combination thereof."
SECTION 3. APPLICABILITY.--The provisions of Section 2 of this act apply to the 2022 and subsequent property tax years.
SECTION 4. EFFECTIVE DATE.--The effective date of the provisions of this act is July 1, 2021.
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