HOUSE 3rd Reading Unamended May 5, 2014 HOUSE Amended 2nd Reading May 2, 2014Second Regular Session Sixty-ninth General Assembly STATE OF COLORADO REENGROSSED This Version Includes All Amendments Adopted in the House of Introduction LLS NO. 14-1016.01 Nicole Myers x4326 HOUSE BILL 14-1389 HOUSE SPONSORSHIP Pabon and DelGrosso, Gerou, Holbert, Lebsock, Melton, Moreno, Ryden, Singer, Williams, Wright, Joshi, Young SENATE SPONSORSHIP Scheffel, Newell House Committees Senate Committees Business, Labor, Economic, & Workforce Development Finance Appropriations A BILL FOR AN ACT Concerning a sales and use tax exemption for information technology equipment that is used in certain data centers, and, in connection therewith, making an appropriation. Bill Summary (Note: This summary applies to this bill as introduced and does not reflect any amendments that may be subsequently adopted. If this bill passes third reading in the house of introduction, a bill summary that applies to the reengrossed version of this bill will be available at http://www.leg.state.co.us/billsummaries.) Beginning July 1, 2015, the bill allows a sales and use tax exemption for the sale, storage, and use of information technology equipment (IT equipment) that will be used in a qualified data center or a qualified refurbished data center. The bill includes IT equipment that is purchased to replace or upgrade IT equipment and IT equipment that is relocated to the state. The bill requires that the IT equipment be used in a qualified data center or qualified refurbished data center within 20 years of the date of the sale, use, storage, or relocation of the IT equipment. The exemption applies to all IT equipment that is used and maintained within a qualified data center or qualified refurbished data center, regardless of whether the owner of the IT equipment is the owner of the qualified data center or qualified refurbished data center. The bill specifies the criteria to be a qualified data center or a qualified refurbished data center and requires the owner of such a data center to certify to the Colorado office of economic development (office) that the data center satisfies that criteria. The office is required to determine whether a data center is a qualified data center or qualified refurbished data center and notify the department of revenue and the data center owner of such determination. The office is required to submit a periodic report to the general assembly regarding the economic benefits of the sales and use tax exemption on IT equipment used in qualified data centers or qualified refurbished data centers. In addition, the office is required to make a presentation to the joint technology committee of the general assembly prior to finalizing the certification for any qualified data center or qualified refurbished data center. Be it enacted by the General Assembly of the State of Colorado: SECTION 1. In Colorado Revised Statutes, add part 8 to article 26 of title 39 as follows: PART 8 SALES AND USE TAX REFUND FOR INFORMATION TECHNOLOGY EQUIPMENT IN A QUALIFIED DATA CENTER 39-26-801. Qualified data centers - legislative declaration - definitions. (1) (a) The general assembly hereby finds and declares that: (I) Colorado's advanced technology industry directly provides and contributes billions of dollars to the state's economy; (II) As a component of that industry, data centers are an important asset and create a significant amount of economic benefit to the state, including high-end information technology, consulting, and construction employment; (III) These assets, once built, are a key component of a company's overall operating environment and can create a long-term investment in a community; (IV) Studies indicate that the state would benefit significantly from state-implemented incentives designed to stimulate private-sector industry growth; (V) Data centers can be a significant source of new revenue, even more so than typical economic growth such as manufacturing, headquarters, and distribution centers; and (VI) Since 2005, approximately seventeen states have passed legislation to provide customized incentives for data centers, and those states are actively recruiting data center investments. (b) The general assembly further finds and declares that enacting a tax incentive to encourage the expansion of current data center businesses, encourage new data center businesses to locate to the state, and invigorate the state's current advanced technology industry's business activities is sound public policy. (2) As used in this section: (a) "Facility" means a facility and the related premises that is primarily used to house information technology equipment in a data center and that has all of the following characteristics: (I) Sophisticated fire suppression and prevention systems and enhanced systems to control the climate within the facility; and (II) Enhanced security measures. A facility is considered to have enhanced security if it has restricted access to selected personnel, permanent security guards, video camera surveillance, an electronic system requiring pass codes, keycards, or biometric scans, such as hand scans or retinal or fingerprint recognition, or similar enhanced security features. (b) (I) "Information technology equipment" means equipment necessary for the maintenance and operation of a qualified data center or qualified refurbished data center, including: (A) Computers and equipment supporting computing, networking, or data storage, including servers, tablets, switches, cross-connects, routers, and the application systems and operating systems that enable the information technology equipment; (B) Cooling systems, cooling towers, and other temperature control infrastructure; (C) Power infrastructure for transformation, distribution, or management of electricity used for the maintenance and operation of a qualified data center or qualified refurbished data center, including but not limited to exterior dedicated business-owned substations, on-site power generation systems, backup power generation systems, battery systems, uninterruptible power supplies, structures erected to protect all information technology equipment from any environmental conditions, and other related infrastructure; and (D) Racking systems, cabling, and trays, which are necessary for the maintenance and operation of the qualified data center or qualified refurbished data center. (II) "Information technology equipment" includes any equipment that has the capability to replace the functionality of any of the equipment specified in subparagraph (I) of this paragraph (b). (c) "Qualified data center" means a facility that is located in the state that satisfies the following criteria: (I) The facility is comprised of one or more buildings that consist in the aggregate of at least twenty-five thousand square feet. In determining whether the facility has the required square footage, the square footage of office space, meeting space, and mechanical and other support facilities shall be included if the spaces are in direct support of the operation of information technology equipment located at the facility. (II) The facility is located on a single parcel or on contiguous or adjacent parcels; (III) Investment in the facility commenced on or after January 1, 2010; and (IV) The total cost of construction of the facility and investment in information technology equipment for the facility is at least thirty million dollars within a five-year period. The total cost of construction and investment includes the investments by the owner of the facility and all other taxpayers that own information technology equipment located at the facility. (d) "Qualified refurbished data center" means a facility that is located in the state that satisfies the following criteria: (I) The facility is comprised of one or more buildings that consist in the aggregate of at least twenty-five thousand square feet. In determining whether the facility has the required square footage, the square footage of office space, meeting space, and mechanical and other support facilities shall be included if the spaces are in direct support of the operation of information technology equipment located at the facility. (II) The facility is located on a single parcel or on contiguous or adjacent parcels; (III) The facility is substantially refurbished after January 1, 2013. A facility will be considered substantially refurbished if at least twenty-five thousand square feet in the facility has been rebuilt or modified, including the installation of information technology equipment, environmental control, energy efficiency improvements, and other building improvements. (IV) The total cost of refurbishment of the facility and investment in information technology equipment is at least fifteen million dollars within a two-year period. The total cost of refurbishment and investment includes the investments by the owner of the facility and all other taxpayers that own information technology equipment located at the facility. (e) "Qualified tenant" means a taxpayer that uses and maintains information technology equipment in a qualified data center or a qualified refurbished data center but is not the owner of the facility and that is certified to be a qualified tenant of the facility by the Colorado office of economic development pursuant to this section. (3) Refund allowed. (a) Subject to the limitations in paragraphs (b), (c), and (d) of this subsection (3), for the calendar year commencing January 1, 2016, and for each calendar year thereafter, a qualified data center, qualified refurbished data center, or a qualified tenant of a facility may claim a refund of state sales and use tax paid by the qualified data center, qualified refurbished data center, or qualified tenant of a facility pursuant to parts 1 and 2 of this article on the sale, storage, use, or consumption of information technology equipment that is used and maintained in a qualified data center or qualified refurbished data center, including information technology equipment that is purchased to replace or upgrade information technology equipment in a qualified data center or qualified refurbished data center and information technology equipment that is relocated to a qualified refurbished data center or qualified refurbished data center from outside the state. (b) The refund allowed in paragraph (a) of this subsection (3) applies to any information technology equipment that is sold, stored, used, or relocated to the state to be used in a qualified data center or a qualified refurbished data center within twenty years after the date of the first investment in the facility for the purpose of becoming a qualified data center or a qualified refurbished data center. (c) Information technology equipment must be used in a qualified data center or a qualified refurbished data center for at least one year during the period that the facility is a qualified data center or qualified refurbished data center. (d) The total amount of all refunds allowed to all qualified data centers, qualified refurbished data centers, and qualified tenants combined shall not exceed one million five hundred thousand dollars in any calendar year. (4) Affidavit. (a) The owner or tenant of any facility that wishes to claim the refund allowed pursuant to this section shall submit an affidavit to the Colorado office of economic development, along with supporting documentation, stating that the facility satisfies the criteria to be a qualified data center or a qualified refurbished data center or that the tenant satisfies the criteria to be a qualified tenant, as applicable. The office shall determine the time and manner in which the affidavits are submitted. The office shall begin accepting affidavits on July 1, 2015, and shall provide an opportunity at least once every three months for owners and tenants of facilities to submit affidavits and supporting documentation pursuant to this subsection (4). (b) The Colorado office of economic development shall determine what supporting documentation the owner of a facility or a tenant of a facility is required to submit along with the affidavit pursuant to paragraph (a) of this subsection (4). At a minimum, the office shall require that the owner of a facility provide the following to the office: (I) The cost to construct or refurbish the facility, as applicable, and the amount of the investment in information technology equipment; and (II) When the costs to construct or refurbish the facility were incurred and when the investment costs in information technology were incurred. (c) In submitting the information required by paragraph (b) of this subsection (4), if the owner of a facility is not able to obtain original purchase documentation from tenants that use and maintain information technology equipment within the facility, the owner may use reasonable estimation methods to project the investment costs. (d) In addition to the supporting documentation to be submitted with the affidavit pursuant to paragraph (a) of this subsection (4), the Colorado office of economic development may require the owner of a facility or the tenant of a facility to submit information to the office regarding the impact that the refund allowed in this section had on the owner or tenant's decision to locate or expand a business, make investments, and hire employees in the state. If the owner or tenant of a facility fails to provide the information requested by the office, the office may deny status as a qualified data center, a qualified refurbished data center, or a qualified tenant, as applicable. (e) Prior to making a final determination of whether a facility is a qualified data center, or a qualified refurbished data center, or whether a tenant of a facility is a qualified tenant, the Colorado office of economic development shall consult with the Colorado economic development commission created in section 24-46-102, C.R.S., regarding whether the facility or the tenant satisfies the criteria to be a qualified data center, qualified refurbished data center, or qualified tenant, as applicable. (f) If, based on the information provided pursuant to the Colorado office of economic development pursuant to this subsection (4), the office determines that a facility has satisfied the criteria to be a qualified data center or qualified refurbished data center or determines that a tenant has satisfied the criteria to be a qualified tenant, the office shall notify the department of revenue and issue a certification to the owner of the facility or the tenant of a facility stating that the owner of the facility or the tenant of the facility may claim a refund pursuant to this section for the sales and use tax paid on information technology equipment that is stored and maintained in the facility. In the certification issued pursuant to this paragraph (f), the office shall include notification to the qualified data center, qualified refurbished data center, or qualified tenant that the certification issued by the office is not a guarantee that it will be allowed to claim a refund pursuant to this section due to the maximum total amount of refunds that the department is authorized to allow pursuant to paragraph (d) of subsection (5) of this section. (g) If the Colorado office of economic development determines that a facility is a qualified data center or a qualified refurbished data center, the facility shall retain its qualified status for twenty years from the date of the first investment in the facility for the purpose of becoming a qualified data center or a qualified refurbished data center. (5) Refund application. (a) To claim the refund allowed by this section, a qualified data center, qualified refurbished data center, or qualified tenant shall submit a refund application and a copy of its certification from the Colorado office of economic development to the department of revenue in a form and manner determined by the department. Such application shall be submitted no earlier than January 1 and no later than April 1 of the calendar year following the calendar year for which the refund is claimed; except that, for refunds claimed for calendar years prior to the first calendar year in which a facility is certified as a qualified data center or a qualified refurbished data center, the application for all such years shall be submitted no earlier than January 1 and no later than April 1 of the calendar year following the calendar year in which the facility was certified as a qualified data center or a qualified refurbished data center. (b) The application required by paragraph (a) of this subsection (5) shall be accompanied by proof of payment of state sales and use taxes paid by the qualified data center, qualified refurbished data center, or qualified tenant in the immediately preceding calendar year; except that, in the first year in which a facility is a certified as a qualified data center or a qualified refurbished data center, the application for refund shall include all purchases for which the refund is claimed in up to the prior five calendar years for information technology equipment used and maintained in a qualified data center or up to the prior two calendar years for information technology equipment used and maintained in a qualified refurbished data center, as applicable. (c) The application required by paragraph (a) of this subsection (5) shall also include any additional information that the department of revenue may require by rule, which may include, without limitation, a detailed list of all expenditures that support a claim for a refund, the name and address of an individual who maintains records of such expenditures, and a statement that the qualified data center, qualified refurbished data center, or qualified tenant agrees to furnish records of all such expenditures to the department of revenue upon request. No refund shall be allowed if the qualified data center, qualified refurbished data center, or qualified tenant has not complied with the requirement of this subsection (5). (d) The department of revenue shall ensure that the total amount of all refunds allowed pursuant to this section to all qualified data centers, qualified refurbished data centers, and qualified tenants combined does not exceed one million five hundred thousand dollars in any calendar year. (6) Limitations. Notwithstanding the provisions of section 39-26-703 (2) (d), all sales, storage, and use of information technology equipment that is used in a qualified data center is eligible for the refund allowed pursuant to this section for five years after the date of the sale, storage, or use of such information technology equipment. Under no circumstances shall the refund allowed pursuant this section be allowed for the sale, storage, or use of information technology equipment prior to January 1, 2016. (7) Report. (a) On or before November 1, 2017, and on or before November 1 every year thereafter, the Colorado office of economic development shall submit a report to the members of the general assembly that analyzes and estimates the economic benefits of the refund allowed in this section. The office shall also make a recommendation to the general assembly regarding whether the total amount of the refund allowed pursuant to this section to all qualified data centers, qualified refurbished data centers, and qualified tenants combined in any calendar year should be increased to ensure that the state receives the maximum possible benefit from allowing the refunds. (b) Any qualified data center, qualified refurbished data center, or qualified tenant of a facility shall submit to the Colorado office of economic development information requested by the office for the purpose of tracking and monitoring qualified data centers, qualified refurbished data centers, and qualified tenants of facilities for the purpose of the report required by paragraph (a) of this subsection (7). If a qualified data center, qualified refurbished data center, or qualified tenant of a facility fails to provide the information requested by the office, the office may revoke certification as a qualified data center, qualified refurbished data center, or qualified tenant of a facility. (8) Rules. The department of revenue shall promulgate rules for the implementation of this section in accordance with the "State Administrative Procedure Act", article 4 of title 24, C.R.S. (8) Repeal. This section is repealed, effective January 1, 2026. SECTION 2. Appropriation. (1) In addition to any other appropriation, there is hereby appropriated, out of any moneys in the general fund, not otherwise appropriated, to the governor - lieutenant governor - state planning and budgeting, for the fiscal year beginning July 1, 2014, the sum of $71,307 and 0.5 FTE, or so much thereof as may be necessary, to be allocated to economic development programs for the implementation of this act as follows: (a) $33,480 and 0.5 FTE for personal services; and (b) $37,827 for operating expenses. (2) In addition to any other appropriation, there is hereby appropriated, out of any moneys in the general fund, not otherwise appropriated, to the department of revenue, for the fiscal year beginning July 1, 2014, the sum of $19,570, or so much thereof as may be necessary, for CITA annual maintenance and support related to the implementation of this act. SECTION 3. Act subject to petition - effective date. This act takes effect at 12:01 a.m. on the day following the expiration of the ninety-day period after final adjournment of the general assembly (August 6, 2014, if adjournment sine die is on May 7, 2014); except that, if a referendum petition is filed pursuant to section 1 (3) of article V of the state constitution against this act or an item, section, or part of this act within such period, then the act, item, section, or part will not take effect unless approved by the people at the general election to be held in November 2014 and, in such case, will take effect on the date of the official declaration of the vote thereon by the governor.