Data centers face limits on tax abatements and purchase-tax rules

The provisions set a maximum tax-abatement period for a private user of a data processing center. For abatements granted on or after January 1, 2027, private users investing $200 million or less generally receive up to 10 years, while users investing more than $200 million generally receive up to 20 years. A private user may qualify for up to 10 additional years, for a total of no more than 30 years, if it meets the investment thresholds and signs a written agreement approved by the Department of Revenue, Department of Commerce, and affected local governing body. The agreement must provide qualified local investments, such as roads, broadband, water systems, or support for local schools and colleges. If the private user breaks a material agreement obligation, the extra 10 years must be revoked, and the user must repay state taxes abated during that extra period, with interest. The periods apply to abatements granted on or after January 1, 2027, and run from the date the private user owns the private-use property for federal tax purposes.

The provisions end most state tax abatements when a covered large data center is placed in service, while keeping certain equipment eligible for construction-tax abatements through the maximum period. The rules apply to data processing centers with total peak demand of at least 100 megawatts when the abatement is granted on or after January 1, 2027. State noneducational property-tax abatements cannot continue after the private-use property is placed in service. Most state construction-related transaction-tax abatements also cannot continue after the property is placed in service. Construction-related taxes on computers, servers, licensed software, computing and networking equipment, cooling systems, and other equipment needed to operate the center remain eligible during the applicable maximum exemption period. The Governor may allow state construction-related transaction-tax abatements for the maximum period if the center is in a targeted county. These limits apply to abatements granted on or after January 1, 2027; the tax-distribution rule applies beginning January 1, 2027.

The provisions protect incentives tied to projects executed before the act takes effect and protect expansions of those projects for 10 years after the effective date. The protection covers incentives in project agreements for projects executed before the act's effective date and expansions of those projects after that date. The text also bars applications filed after the sunset date stated in Section 40-9B-4.1. The supplied text combines deleted and replacement date wording, so the exact sunset date cannot be confirmed from this passage alone. The act states an effective date of June 1, 2026; the protection for covered expansions lasts 10 years after that date.