NY TSB-A-12(30)S Sales Tax 2012-12-03

Does an operator of an Internet data center qualify for the NY sales-tax exemption on its equipment and related services?

Short answer: Yes. A business that operates an Internet data center -- a facility specifically designed and built to provide a high-security environment for servers hosting websites, and that provides uninterrupted Internet access and continuous traffic management for customers' web pages -- is an 'operator of an Internet data center' under Tax Law 1115(a)(37) and may claim the exemption. The exemption covers machinery, equipment, and other tangible personal property located/installed in the center and required for and directly related to providing Internet website services for sale -- for example servers, routers, prewritten software, storage racks, climate-control and air-filtration equipment, power generators, and raised flooring -- plus related services (installing/maintaining/repairing the qualified property and protective services) under Tax Law 1115(y), with allocation where property is both taxable and exempt.

Disclaimer: This is an official New York State Department of Taxation and Finance Advisory Opinion (TSB-A), issued by the Office of Counsel at a taxpayer's request. It is limited to the facts set forth in it and binds the Department only with respect to the petitioner to whom it was issued, and only if that petitioner fully and accurately described all relevant facts; another taxpayer cannot rely on it. It reflects the law, regulations, and Department policy in effect when issued and may since have changed. Taxpayer-identifying details are redacted. New York State and local sales taxes are administered centrally by the Department. This summary is informational only and is not legal or tax advice. Consult a licensed New York tax professional about your specific situation.

About this page: The plain-English summary, reader guidance, and Q&A below were written by Ezel based on the official state tax ruling. The original ruling (linked at the bottom of this page, or PDF in the sidebar) is the authoritative source for any reliance.

View original ruling (PDF)

Plain-English summary

The petitioner owns a condominium interest in a Manhattan high-rise and will develop it exclusively as an Internet data center -- a high-security environment for servers hosting websites, with uninterrupted Internet access. It will build "powered shell" space (tenants finish their own data centers), "turn-key" data-center space (the petitioner supplies the infrastructure for smaller tenants), and "carrier equipment room" / "meet me room" space for network providers and cross-connections. The petitioner will operate and manage the facility, carrier space, and network. It asked whether it qualifies for the Internet data center exemption in Tax Law 1115(a)(37).

The Office of Counsel concluded the petitioner qualifies. Tax Law 1115(a)(37)(i) exempts machinery, equipment, and other tangible personal property sold to a person operating an Internet data center in NY for use in the center, where the property is located/installed in the center and is required for and directly related to providing Internet website services for sale. Examples of exempt property: computer hardware (servers, routers), prewritten software, storage racks/cages, climate-control and air-filtration and air-conditioning equipment, vapor barriers, power generators and conditioners, raised flooring, and similar equipment (TB-ST-405). Related services are also exempt under Tax Law 1115(y): installing/maintaining/servicing/repairing the qualified property (1105(c)(3)), maintaining/servicing/repairing the qualified real property (1105(c)(5)), and protective and detective services (1105(c)(8)) -- with an allocation where a service relates to both taxable and exempt property.

An "operator of an Internet data center" is defined as a person (a) operating a facility specifically designed and constructed to provide a high-security environment for servers on which websites reside, and (b) providing at that facility uninterrupted Internet access to customers' web pages in a secure environment and continuous Internet traffic management. The petitioner meets the definition, so it may claim the 1115(a)(37) exemption.

What this means for you

Data-center developers and operators (colocation, hosting)

If you operate a true Internet data center -- purpose-built, high-security, providing uninterrupted access and traffic management for customers' websites -- you can buy the core build-out tax-free: servers, routers, prewritten software, racks, climate-control and power infrastructure, raised flooring, and the like, plus the install/maintain/repair and security services for that property (allocating when a job covers both exempt and taxable property). The exemption reaches property required for and directly related to providing website services for sale.

Know the boundary

The exemption is tied to property in the center and directly related to website services for sale. Property outside that scope -- or not meeting the operator definition -- isn't covered, and mixed-use services need allocation.

Common questions

Q: Do we qualify as an Internet data center operator?
A: Yes, if your facility is purpose-built for a high-security server environment and you provide uninterrupted Internet access and continuous traffic management for customers' web pages.

Q: What property is exempt?
A: Equipment/TPP in the center directly related to providing website services for sale -- servers, routers, prewritten software, racks, climate-control and air-filtration gear, generators/conditioners, and raised flooring, among others.

Q: Are services exempt too?
A: Yes -- installing/maintaining/repairing the qualified property and protective services are exempt under 1115(y), with allocation where a service covers both taxable and exempt property.

Citations and references

Tax Law section 1115(a)(37) (Internet data center exemption)
Tax Law section 1105(a) (sales tax on tangible personal property)
Tax Law section 1110 (compensating use tax)
Tax Law section 1115(y) (exempt services for data center property)

Source

Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_2012.htm
Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a12_30s.pdf

Original ruling text

New York State Department of Taxation and Finance

TSB-A-12(30)S
Sales Tax
December 3, 2012

Office of Counsel
Advisory Opinion Unit
STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S120507B

The Department of Taxation and Finance received a Petition for Advisory Opinion
from name and address redacted. Petitioner asks whether it is entitled to claim the exemption
from sales and use tax found in Tax Law Section 1115(a)(37) for Internet data center
operators.
We conclude that Petitioner is entitled, as an Internet data center operator, to claim the
sales and use tax exemption found in Tax Law Section 1115(a)(37).
Facts
Petitioner owns a condominium interest in a high rise building in Manhattan and plans
to develop the property exclusively for use as an Internet data center facility. The Internet
data center facility will provide both a high security environment for the location of servers
that host Internet web sites as well as uninterrupted Internet access.
Petitioner is planning to develop part of the building as “powered shell” space. The
powered shell space will be partially outfitted by Petitioner for Internet data center use and
powered shell tenants will make further significant investments of their own for additional
equipment, machinery and tangible personal property required to complete the Internet data
centers to suit their individual needs. Many of the powered shell tenants will be larger in
nature, having significant Internet data center requirements, with sufficient capital to invest in
the development of their Internet data center space.
Petitioner will also be developing part of the space as “turn-key” data center
operations for its tenants, supplying the tenants with the necessary infrastructure for Internet
data center operations. Such space is likely to be attractive to customers having smaller data
center requirements including emerging businesses, since they will not be required to incur
substantial capital and ongoing maintenance costs for building and maintaining data center
infrastructure.
Further, Petitioner is developing “carrier equipment room” and “meet me room” space
within the facility to house network service provider equipment and to support the exchange
of Internet traffic between providers through cross-connections for the provision of
uninterrupted Internet access to Petitioner’s customers. The network space is designed to

-2-

TSB-A-12(30)S
Sales Tax
December 3, 2012

provide extra security to support a diverse carrier network resulting in a best of class network
environment.
Upon completion of the development, Petitioner will operate and manage the data
center facility as well as the carrier space and network.
Analysis
Tax Law section 1105(a) imposes sales tax on the receipts from every retail sale of
tangible personal property, except as otherwise provided. Tax Law section 1110 imposes a
compensating use tax on tangible personal property purchased at retail, except, as otherwise
provided. Tax Law section 1115(a)(37)(i) exempts from tax:
Machinery, equipment and other tangible personal property specified herein, sold to a
person operating an internet data center located in this state for use in such a center,
where such property: (a) will be located or installed in a facility or structure which is
an internet data center and (b) is required for and directly related to the provision of
internet website services for sale by the operator of the center.
Examples of tangible personal property exempt from sales tax for an operator of any Internet
data center include: computer system hardware, such as servers and routers; pre-written
computer software; storage racks and cages for computer equipment; property necessary to
maintain the appropriate climate-controlled environment, such as air-filtration equipment, airconditioning equipment, and vapor barriers; power generators and power conditioners;
property that will constitute raised flooring when installed; and other similar equipment. See
TB-ST-405. Examples of services exempt from tax for an operator of any Internet data center
include: installing, maintaining, servicing, and repairing qualified tangible personal property
(Tax Law § 1105(c)(3)); maintaining, servicing, and repairing qualified real property (Tax
Law § 1105(c)(5)) of the Tax Law; and protective and detective services (Tax Law §
1105(c)(8)). See Tax Law § 1115(y). If any of these services relate to property that is both
taxable and exempt from tax, an allocation may be used to determine the portion of the total
receipt that is exempt from tax. See Tax Law § 1115(y); TB-ST-405.
In addition, Tax Law section 1115(a)(37)(i) defines the operator of an Internet data
center as:
a person (a) operating a facility which consists of a data center specifically designed
and constructed to provide a high security environment for the location of servers and
similar equipment on which reside internet websites; and (b) providing at such facility
the internet website services of: (i) uninterrupted internet access to its customers web
pages in a secure environment and (ii) continuous internet traffic management for its
customers’ web pages.

-3-

TSB-A-12(30)S
Sales Tax
December 3, 2012

Petitioner is an operator of an Internet data center under the definition found in Tax
Law section 1115(a)(37)(i) because it will operate the center upon its completion, in a high
security environment and will provide uninterrupted Internet access. Therefore, Petitioner is
entitled to claim the sales and use tax exemption found in Tax Law section 1115(a)(37).

DATED: December 3, 2012

NOTE:

/S/
DEBORAH R. LIEBMAN
Deputy Counsel

An Advisory Opinion is issued at the request of a person or entity. It is limited to
the facts set forth therein and is binding on the Department only with respect to the
person or entity to whom it is issued and only if the person or entity fully and
accurately describes all relevant facts. An Advisory Opinion is based on the law,
regulations, and Department policies in effect as of the date the Opinion is issued
or for the specific time period at issue in the Opinion. The information provided in
this document does not cover every situation and is not intended to replace the law
or change its meaning.