When a company operating a Tennessee qualified data center expands its facilities with a new round of investment, does it qualify again for the headquarters-facility sales/use tax credit, and can it keep using its existing industrial machinery exemption certificate for the expansion?

Plain-English summary

The Taxpayer operates a Tennessee "qualified headquarters facility" spanning two locations in the same metro area: a Production Facility and a Back-up Facility, treated as a single location for credit purposes. After an earlier merger, the Taxpayer significantly expanded ("Investment 2"), spending heavily on servers, software, and hardware to qualify as a "qualified data center" (QDC), creating new jobs, and obtaining a Tennessee industrial machinery exemption certificate and job tax credit for that round. Now the Taxpayer is planning a further expansion ("Investment 3") — a new multi-million-dollar investment and new jobs — and asked the Department to confirm how the existing credits and exemptions interact with the new round.

Four rulings, all conditioned on meeting statutory thresholds:

1. The new expansion qualifies as a "qualified headquarters facility." As long as the Taxpayer meets § 67-6-224's minimum-investment and other requirements for the new investment period, the expansion counts as a qualified headquarters facility under § 67-6-224(b)(9).

2. The Production Facility, Back-up Facility, and Administrative Offices remain a single enterprise. As long as all locations stay within the same Tennessee county or metropolitan statistical area, they're treated as one campus for credit purposes — consistent with how the facilities were already treated for the earlier investment.

3. The Taxpayer can keep using its existing industrial machinery exemption certificate — but with a line drawn between investment rounds. Computer hardware, software, computer-related services, and even repair/installation/warranty/service contracts tied to those items qualify as "industrial machinery" under § 67-6-102(47)(K) when used in a qualified data center. The Taxpayer may continue buying such equipment tax-free under its existing certificate. However, only purchases made for the new expansion (Investment 3) count toward the new required capital investment threshold — purchases tied to the prior Facility creation and Investment 2 are treated separately and don't carry over. The Taxpayer must document and certify which purchases belong to which investment round.

4. The Taxpayer can claim the headquarters sales/use tax credit on the new round, once approved. Provided the Taxpayer files a new application and business plan and meets the compliance requirements (application, business plan, tentative-approval letter, claim with proof of sales/use tax paid, final approval letter), it's entitled to a credit for all state sales/use tax paid on "qualified tangible personal property" (building materials, machinery, equipment, furniture, fixtures, and primarily-used computer software) — except a 0.5% rate that's earmarked for education and can't be offset. The Department also confirmed it will work with the Taxpayer on a managed compliance agreement (§ 67-6-224(h)) — potentially using effective tax rates or a direct-pay permit — to streamline ongoing compliance.

What this means for you

Companies operating qualified data centers or headquarters facilities with successive investment rounds

Each new investment period generally needs its own application, business plan, and approval — purchases from an earlier qualified investment don't automatically carry forward to satisfy a later expansion's minimum-investment threshold. Keep meticulous records distinguishing which purchases belong to which investment round, since the Department will require certification of that split.

Multi-location Tennessee operations considering headquarters-facility credit eligibility

Separate buildings (production, back-up, administrative) can be treated as a single qualifying enterprise for the headquarters credit, as long as they're all within the same county or metropolitan statistical area — useful for data-center operators who split functions across nearby sites.

Accountants and tax professionals

This ruling usefully separates four distinct Tennessee economic-development mechanisms that often apply together to a large data-center/headquarters project: the § 67-6-224 headquarters facility sales/use tax credit, the § 67-6-102(47)(K) industrial machinery exemption (extended to computer equipment in a QDC), the F&E job tax credit (referenced but not the focus here), and managed compliance agreements under § 67-6-224(h) for administering it all. Note this ruling is substantively a sales/use tax credit ruling despite being served from the sales/ folder — consistent here, but folder placement generally isn't a reliable tax-type signal in this corpus.

Common questions

Q: If a company already has an industrial machinery exemption certificate from an earlier expansion, does a new expansion need a fresh one?
A: The existing certificate can continue to be used to buy qualifying computer equipment for the data center tax-free, but only purchases tied to the NEW investment period count toward that new expansion's required capital investment — earlier-round purchases are tracked separately.

Q: Do multiple buildings at different addresses disqualify a company from headquarters-facility treatment?
A: No — as long as they're located in the same Tennessee county or metropolitan statistical area and operate as a single enterprise, multiple facilities can be treated as one location for the credit.

Q: Is the headquarters sales/use tax credit available against all Tennessee sales/use tax paid on qualifying property?
A: Nearly all — the credit covers all state sales/use tax except a 0.5% portion earmarked for education, which can't be offset by this credit.

Q: Can another company operating a similar data center rely on this letter ruling?
A: No. A Tennessee letter ruling binds the Department only as to the specific taxpayer and facts it was issued to. This summary is informational only, not legal or tax advice.

Citations and references

Tennessee statutes (Tenn. Code Ann.):

• § 67-6-224(a) (qualified headquarters facility sales/use tax credit)
• § 67-6-224(b)(1)-(11) (definitions: "facility," "full-time employee job," "headquarters facility," "headquarters related functions and services," "headquarters staff employees," "investment period," "minimum investment," "new full-time employee job," "qualified headquarters facility," "qualified tangible personal property")
• § 67-6-224(d) (compliance requirements for taking the credit)
• § 67-6-224(f) (credit cannot reduce education-earmarked tax); § 67-6-103(c) (referenced)
• § 67-6-224(h) (managed compliance agreements)
• § 67-6-102(47)(K) (2008 Supp.) (industrial machinery includes qualifying computer equipment used in a qualified data center, including repair parts/services and warranty/service contracts)
• § 67-6-102(76) (definition of "qualified data center"); § 67-6-102(24) (definition of "data center")
• § 67-4-2009(4)(A) (industrial machinery credit, referenced); job tax credit (referenced, not detailed)
• § 39-14-601(3), (5)-(9), (12), (15), (20) (definitions of "computer," "computer network," "computer program," "computer software," "computer system," "data," "input," "output," "to process," incorporated by reference)

Source

• Landing page: https://www.tn.gov/revenue/tax-resources/legal-resources/tax-rulings.html
• Original PDF: https://www.tn.gov/content/dam/tn/revenue/documents/rulings/sales/11-06.pdf

Original ruling text

TENNESSEE DEPARTMENT OF REVENUE
LETTER RULING # 11- 06
WARNING
Letter rulings are binding on the Department only with respect to the individual taxpayer
being addressed in the ruling. This presentation of the ruling in a redacted form is
information only. Rulings are made in response to particular facts presented and are not
intended necessarily as statements of Department policy.
SUBJECT
Eligibility requirements for the sales and use tax credit on qualified tangible personal property
provided by Tenn. Code Ann. § 67-6-224 with regard to a qualified headquarters facility.
SCOPE
This letter ruling is an interpretation and application of the tax law as it relates to a specific set of
existing facts furnished to the Department by the taxpayer. The rulings herein are binding upon
the Department, and are applicable only to the individual taxpayer being addressed.
This letter ruling may be revoked or modified by the Commissioner at any time. Such revocation
or modification shall be effective retroactively unless the following conditions are met, in which
case the revocation shall be prospective only:
(A) The taxpayer must not have misstated or omitted material facts
involved in the transaction;
(B) Facts that develop later must not be materially different from the
facts upon which the ruling was based;
(C) The applicable law must not have been changed or amended;
(D) The ruling must have been issued originally with respect to a
prospective or proposed transaction; and
(E) The taxpayer directly involved must have acted in good faith in
relying upon the ruling and a retroactive revocation of the ruling must
inure to his detriment.
FACTS
In [YEAR], the [TAXPAYER] established a Tennessee “qualified headquarters facility” (the
“Facility”), as the term is defined in Tenn. Code Ann. § 67-6-224(b)(9). The Facility consisted of
two separate locations in the [TENNESSEE CITY] metropolitan statistical area (the “MSA”). The
first location is a production facility (the “Production Facility”) [REDACTED INFORMATION].
The second location is a back-up facility (the “Back-up Facility”), which [REDACTED
INFORMATION]. The Production Facility and the Back-up Facility are treated as a single

location for purposes of the “qualified headquarters facility” credit provided by Tenn. Code Ann.
§ 67-6-224.
In [YEAR], [TAXPAYER] announced a plan to significantly increase capacity following a merger
with [COMPANY X]. Under the plan, the Production Facility would handle all production for
[TAXPAYER]. [REDACTED INFORMATION]. In connection with its application as a “qualified
data center” (“QDC”), as the term is defined in Tenn. Code Ann. § 67-6-102(76), [TAXPAYER]
announced plans to spend [DOLLAR AMOUNT – TOTAL INVESTMENTS ARE SUFFICIENT
TO QUALIFY FOR TAX INCENTIVES SOUGHT] in capital improvements in Tennessee. The
majority of this expenditure related to servers, computer software and other hardware
(“Computer Equipment”). [TAXPAYER] also committed to create at least [NUMBER – NUMBER
OF JOBS CREATED ARE SUFFICIENT TO QUALIFY FOR TAX INCENTIVES SOUGHT] new
jobs in connection with the investment (“Investment 2”).
In connection with Investment 2, [COMPANY X] made capital improvements at its Production
Facility including [REDACTED INFORMATION]. All administrative services, previously located
at the Production Facility, were moved to office space off [HIGHWAY NAME] in [TENNESSEE
CITY] (the “Administrative Facility”).
Also in connection with Investment 2, [TAXPAYER] submitted its Business Plan for Job Tax
Credits and received a letter dated [DATE] from the Department tentatively approving its
Business Plan for the investment period starting with the fiscal year ended [DATE]. In
connection with Investment 2, [TAXPAYER] qualified for the job tax credit, the industrial
machinery exemption for sales and use tax purposes pursuant to Tenn. Code Ann. §§ 67-6206(a) and 67-6-102(42)(K)(2008 supp.), and the industrial machinery credit provided by Tenn.
Code Ann. § 67-4-2009(4)(A).
[TAXPAYER]1 was granted an industrial machinery exemption for sales tax purposes effective
[DATE]. Because the Tennessee facilities are, in essence, computer centers, [TAXPAYER],
has been purchasing, leasing, or licensing Computer Equipment since originally qualifying as a
“headquarters facility,” as the term is defined in Tenn. Code Ann § 67-6-224(b)(3).
[TAXPAYER] uses its industrial machinery exemption to make purchases of various types of
Computer Equipment and lists the following examples of types of Computer Equipment that it
has or will likely purchase, lease or license as part of the operation of its QDC:

1. Various types, sizes and configurations of computer servers and peripheral devices
   acquired in connection with support of internal operations including but not limited to
   business applications, human resources, financial, sales support, electronic mail,
   regulatory monitoring and data security;
2. Various types, sizes and configurations of mainframe computers, and computer
   peripheral devices acquired in connection with or part of customer financial transaction
   processing, monitoring and data security;

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This Department issued an industrial machinery exemption to [TAXPAYER], as stated in the [DATE] letter that
requested this Letter Ruling.

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3. Various types, sizes and configurations of personal computers, support devices, and
peripheral equipment, including but not limited to, desktop computers and notebook
computers;

4. Various types, sizes and configurations of routers, input/output devices necessary to
   support a computer network, central units, phone systems, handsets, video equipment,
   and teleconferencing equipment, including but not limited to related telecommunications
   equipment;
5. Various types, sizes and configurations of computers, computer systems and computer
   networking devices acquired in connection with or part of electrical power management,
   intrusion, theft detection, fire suppression and various other security systems;
6. Various types, sizes and configurations of printers, support devices and associated
   peripherals, including, but not limited to, fax machines, multi-function printers and battery
   and other backup facilities;
7. Associated software and procedures for all of the above, including any supporting
   materials or documentation; and
8. Repair parts and services, installation services, maintenance agreements, warranty or
   service agreements related to all of the above.
   In Letter Ruling [NUMBER], the Department stated that the purchase, license or lease of
   computer hardware, software, maintenance, and computer related services described in the
   facts presented by [TAXPAYER] for use in [TAXPAYER]’s qualified data center clearly fall within
   the contemplation of the terms “computer network”, “computer software”, and “computer
   system”, as those terms are defined by § 39-14-601, and warranty and service contracts are
   considered to be “industrial machinery” by Tenn. Code Ann. § 67-6-102(42)(K)[(2008 supp)].
   In [YEAR] [TAXAPYER] announced plans to increase investment in one of its U.S. facilities. In
   connection with the new investment, [TAXPAYER], plans to invest at least [DOLLAR AMOUNT
   – TOTAL INVESTMENTS ARE SUFFICIENT TO QUALIFY FOR TAX INCENTIVES SOUGHT]
   in [REDACTED INFORMATION] required for the facility expansion. [TAXAPYER], also plans to
   create at least [NUMBER – NUMBER OF JOBS CREATED ARE SUFFICIENT TO QUALIFY
   FOR TAX INCENTIVES SOUGHT] new jobs as part of the facility expansion.
   [REDACTED INFORMATION] The potential new investment is referred to hereafter as
   “Investment 3.” If Tennessee is chosen as the site for Investment 3, [TAXPAYER] will file an
   application to be an expanded qualified headquarters facility with its investment period to begin
   effective [DATE].
   The proposed expansion in connection with Investment 3 is expected to meet the statutory
   requirements for [TAXPAYER] to become a “qualified headquarters facility,” as defined in Tenn.
   Code Ann. § 67-6-224(b)(9). Accordingly, [TAXPAYER] will be filing a new Business Plan and
   Qualified Headquarters Application and expects to be eligible for the qualified headquarters

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facility credit provided by Tenn. Code Ann. § 67-6-224 on purchases of “qualified tangible
personal property,” as defined in Tenn. Code Ann. § 67-6-224(b)(11), made during the
investment period.
QUESTIONS PRESENTED

1. Will [TAXPAYER]’s proposed expansion of [TAXPAYER]’s Tennessee facilities be treated as
   a “qualified headquarters facility,” as the term is defined in Tenn. Code Ann. § 67-6224(b)(9)?
2. Will the Production Facility, the Back-up Facility, and Administrative Offices be recognized as
   one business enterprise for purposes of the qualified headquarters facility credit provided by
   Tenn. Code Ann. § 67-6-224?
3. Will [TAXPAYER] be permitted to use its current industrial machinery exemption certificate to
   acquire qualifying industrial machinery free of Tennessee sales and use tax?
4. Provided that [TAXPAYER] files an application to qualify as a headquarters facility and a
   new business plan and both are approved by the Commissioner of Revenue, is [TAXPAYER]
   entitled to the sales and use tax credit authorized by Tenn. Code Ann. § 67-6-224(a), and
   may this credit be used to offset liability for sales and use taxes paid on tangible personal
   property purchased by, or used at, any [TAXPAYER] location in Tennessee, and will the
   Department of Revenue work with [TAXPAYER] on a managed compliance agreement as
   provided in Tenn. Code Ann. § 67-6-224(h)?
   RULINGS
5. Yes, assuming that [TAXPAYER] meets all of the applicable requirements set forth in Tenn.
   Code Ann. § 67-6-224 and other applicable statutes for the expansion of a “qualified
   headquarters facility,” as the term is defined in Tenn. Code Ann. § 67-6-224(b)(9).
6. Yes, as long as the Production Facility, the Back-up Facility and the Administrative Offices
   are located in the same county or MSA of this state (See Tenn. Code Ann. § 67-6-224(b)(1)).
7. Yes, to the extent that [TAXPAYER] meets, or has already met all applicable statutory
   requirements for its QDC or any expansion thereof, [TAXPAYER] may continue to purchase,
   lease or license industrial machinery described in Tenn. Code Ann. § 67-6-102(47)(K) for its
   QDC. However, only purchases made for the proposed new expansion (Investment 3) will
   count toward the required capital investment for the expanded qualified headquarters facility.
   Purchases made in connection with the previous Facility creation and its subsequent
   expansion (Investment 2) will be treated separately and will not qualify for the new required
   capital investment (Investment 3).
   [TAXPAYER] will need to certify the purpose and use of any purchases proposed to be
   counted in the new capital investment requirement and to show the Department
   documentation with regard to which of the qualifying expenditures were made in connection

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with its prior creation of the Facility and its subsequent expansion under Investment 2 and
which where made in connection with its new Investment 3.

4. Yes.
   ANALYSIS
   1.

[TAXPAYER]’s Expansion of [TAXPAYER]’s Tennessee Facilities
Will Be Treated as a “Qualified Headquarters Facility,” Assuming that
[TAXPAYER] Meets all Applicable Requirements Set Forth in
Tenn. Code Ann. § 67-6-224 and Other Applicable Statutes

Tenn. Code Ann. § 67-6-224(b)(9) defines a “qualified headquarters facility” as follows for
purposes of the sales and use tax credit provided by Tenn. Code Ann. § 67-6-224(a):
“Qualified headquarters facility” means a headquarters facility where the taxpayer has made
the minimum investment during the investment period[.]
For this purpose, the following definitions set forth in Tenn. Code Ann. § 67-6-224(b) apply:
(1)

“Facility” means a building or buildings, either newly constructed, expanded or
remodeled, housing headquarters staff employees and located in a county or
metropolitan statistical area in this state. A facility may include parking facilities
exclusively for the use of headquarters staff employees and visitors; provided, that the
parking facilities are built in conjunction with the newly constructed, expanded, or
remodeled building or buildings. An expansion of a headquarters facility may be
connected to or separate from a headquarters facility or other facilities located in a
county or metropolitan statistical area in this state. The facility must be utilized as a
headquarters facility for a period of at least ten (10) years beginning from the date of
substantial completion;

(2)

“Full-time employee job” means a permanent, rather than seasonal or part-time,
employment position, providing employment as a headquarters staff employee, for at
least twelve (12) consecutive months, to a person for at least thirty-seven and one half
(37.5) hours per week, with minimum health care, as described in title 56, chapter 7,
part 22;

(3)

“Headquarters facility” means a facility in this state that houses the international,
national, or regional headquarters of a taxpayer, where headquarters staff employees
are located and employed, and where the primary headquarters related functions and
services are performed:

(4)

“Headquarters related functions and services” means those functions involving
administrative, planning, research and development, marketing, personnel, legal,
computer or telecommunications services performed by headquarters staff employees
on an international, national, or regional basis. For purposes of this subsection (b),
regional means a geographic area comprised of at least Tennessee and one (1) or
more of its contiguous states. “Headquarters related functions and services” does not

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include functions involving manufacturing, processing, warehousing, distribution,
wholesaling, or operating a call center;
(5)

“Headquarters staff employees” means executive, administrative, or professional
workers performing headquarters-related functions and services.
An executive
employee is a full-time employee who is primarily engaged in the management of all or
part of the enterprise. An administrative employee is a full-time employee who is not
primarily involved in manual work and whose work is directly related to management
policies or general headquarters operations. A professional employee is an employee
whose primary duty is work requiring knowledge of an advanced type in a field of
science or learning. This knowledge is characterized by a prolonged course of
specialized study;

(6)

“Investment period” means that the investment must be made during the period
beginning one (1) year prior to the start of the construction, expansion, or remodeling
and ending one (1) year after substantial completion of the construction, expansion, or
remodeling of the facility. However, in no event shall the investment period exceed six
(6) years;

(7)(A) “Minimum investment” means:
(i)

A minimum investment by the taxpayer and lessor to the taxpayer of fifty
million dollars ($50,000,000) or more in a building or buildings, either
newly constructed, expanded, or remodeled; or

(ii)

A minimum investment by the taxpayer and the lessor to the taxpayer of
ten million dollars ($10,000,000) in a building or buildings, either newly
constructed, expanded, or remodeled, along with the creation of not fewer
than one hundred (100) net new full-time employee jobs created during
the investment period that pay at least one hundred fifty percent (150%)
of the state's average occupational wage, as defined in § 67-4-2004, for
the month of January of the year in which the full-time employee jobs are
created;

(B) The minimum investment may include, but is not limited to, the purchase price of an
existing building and the cost of building materials, labor, equipment, furniture,
fixtures, computer software, parking facilities and landscaping, but shall not include
land or inventory;
(8)

“New full-time employee job” means full-time headquarters staff employee jobs that are
new to the state of Tennessee and, for at least ninety (90) days prior to being filled by
the taxpayer, did not exist in Tennessee as a job position of the taxpayer or of another
business entity. The new full-time employee jobs must be created and filled within the
investment period. An employee in a new full-time employee job may be employed at a
temporary location in this state, pending completion of construction or renovation work
at the qualified headquarters facility[.]

The Facts presented state that [TAXPAYER], plans to invest [DOLLAR AMOUNT – TOTAL
INVESTMENTS ARE SUFFICIENT TO QUALIFY FOR TAX INCENTIVES SOUGHT] in
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[REDACTED INFORMATION] required for the facility expansion in connection with its new
investment. In addition, at least [NUMBER – NUMBER OF JOBS CREATED ARE SUFFICIENT
TO QUALIFY FOR TAX INCENTIVES SOUGHT] new jobs will be created as a result of the
facility expansion.
It appears that the minimum investment dollar amount threshold set forth in Tenn. Code Ann. §
67-6-224(b)(7)(A)(i) will be met and that the expansion will take place at a facility that has
previously met the applicable requirements set forth in Tenn. Code Ann. § 67-6-224 to be
considered a “qualified headquarters facility,” as the term is defined in Tenn. Code Ann. § 67-6224(b)(9). Purchases made in connection with the previous Facility creation and its subsequent
expansion (Investment 2) will be treated separately and will not qualify for the new required
capital investment (Investment 3).
[TAXPAYER] will need to certify the purpose and use of any purchases proposed to be counted
in the new capital investment requirement and to show the Department documentation with
regard to which of the qualifying expenditures were made in connection with its prior creation of
the Facility and its subsequent expansion under Investment 2 and which where made in
connection with its new Investment 3.
[TAXPAYER]’s proposed expansion of [TAXPAYER]’s Tennessee facilities will be treated as a
“qualified headquarters facility,” as the term is defined in Tenn. Code Ann. § 67-6-224(b)(9),
assuming that [TAXPAYER] can meet all of the applicable requirements set forth in Tenn. Code
Ann. § 67-6-224 and other applicable statutes for the expansion of a qualified headquarters
facility.
2.

The Production Facility, the Back-up Facility, and the Administrative Offices
Operate as a Part of the Same Enterprise and Will be Treated as a Single
Location for Purposes of the Qualified Headquarters Facility Sales and Use Tax
Credit Provided by Tenn. Code Ann. § 67-6-224(a)

During [YEAR], [TAXPAYER]’s predecessor filed all of the necessary applications and received
approval for [TAXPAYER]’s Tennessee facilities to be classified as a qualified headquarters
facility. [TAXPAYER]’s multiple locations previously qualified as a single campus for purposes
of the qualified headquarters facility investment under Tenn. Code Ann. § 67-6-224(b)(1), which
states that “[a]n expansion of a headquarters facility may be connected to, or separate from, a
headquarters facility or other facilities located in a county or metropolitan statistical area in this
state.” These facilities operate within the same metropolitan statistical area and operate as a
single enterprise. As such, these facilities have previously been treated as one campus for
qualified headquarters facility purposes. (See Facts presented in Letter Ruling [NUMBER]
issued [DATE].)
As long as the multiple facilities that comprise the qualified headquarters facility continue to be
located in the same Tennessee county or MSA and comprise a single qualified business
enterprise and all other applicable statutory requirements are met, the qualified headquarters
facility will be eligible for the sales and use tax credit provided by Tenn. Code Ann. § 67-6224(a).

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3.

[TAXPAYER] Will be Permitted to Continue to Use its Current Industrial
Machinery Exemption Certificate to Purchase Qualifying Industrial Machinery
Free of Tennessee Sales and Use Tax to the Extent that [TAXPAYER] Meets, or has
Already Met all Applicable Statutory Requirements

The term “industrial machinery” is defined by Tenn. Code Ann. § 67-6-102(47)(K) for Tennessee
sales and use tax purposes to include the following items:
“Industrial machinery” also includes any “computer”, “computer network”, “computer
software”, or “computer system”, as defined by § 39-14-601, and any peripheral devices,
including, but not limited to, hardware such as printers, plotters, external disc drives,
modems, and telephone units, when such items are used in the operation of a qualified data
center. For purposes of this subdivision (47)(K), “industrial machinery” includes repair parts,
repair or installation services, and warranty or service contracts, purchased for such items
used in the operation of a qualified data center[.]
Tenn. Code Ann. § 39-14-601(3), (5), (6), (7), (8), (9), (12), (15), and (20) define the terms
“computer,” “computer network,” “computer program,” “computer software,” “computer system,”
“data,” “input,” “output,” and “to process” as follows:
(3)

“Computer” means a device or collection of devices, including its support devices,
peripheral equipment, or facilities, and the communication systems connected to it
which can perform functions including, but not limited to, substantial computation,
arithmetic or logical operations, information storage or retrieval operations, capable of
being used with external files, one (1) or more operations which contain computer
programs, electronic instructions, allows for input of data, and output data, (such
operations or communications can occur with or without intervention by a human
operator during the processing of a job)[.]

(5)

“Computer network” means a set of two (2) or more computer systems that transmit
data over communication circuits connecting them, and input/output devices including,
but not limited to, display terminals and printers, which may also be connected to
telecommunication facilities[.]

(6)

“Computer Program” means an ordered set of data that are coded instructions or
statements that, when executed by a computer, cause the computer to process data[.]

(7)

“Computer software” means a set of computer programs, procedures, and associated
documentation concerned with the operation of a computer, computer system, or
computer network whether imprinted or embodied in the computer in any manner or
separate from it, including the supporting materials for the software and accompanying
documentation[.]

(8)

“Computer system” means a set of connected devices including a computer and other
devices including, but not limited to, one (1) or more of the following: data input, output,

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or storage devices, data communication circuits, and operating system computer
programs that make the system capable of performing data processing tasks[.]
(9)

“Data” means a representation of information, knowledge, facts, concepts, or
instructions which is being prepared or has been prepared in a formalized manner, and
is intended to be stored or processed, or is being stored or processed, or has been
stored or processed in a computer, computer system, or computer network[.]

(12) “Input” means data, facts, concepts or instructions in a form appropriate for delivery to,
or interpretation or processing by, a computer[.]
(15) “Output” means data, facts, concepts or instructions produced or retrieved by
computers from computers or computer memory storage devices[.]
(20) “To process” means to use a computer to put data through a systematic sequence of
operations for the purpose of producing a specified result.
Tenn. Code Ann. § 67-6-102(76) defines a “qualified data center” as follows:
“Qualified data center” means a data center that has made a required capital investment in
excess of two hundred fifty million dollars ($250,000,000) during an investment period not to
exceed three (3) years and that creates at least twenty-five (25) net new full-time employee
jobs during the investment period paying at least one hundred fifty percent (150%) of the
state's average occupational wage as defined in § 67-4-2004. For purposes of this
subdivision (76), "required capital investment" means an increase of a business investment
in real or tangible personal property or computer software owned or leased in the state,
valued in accordance with generally accepted accounting principles. A capital investment
shall be deemed to have been made as of the date of payment or the date the taxpayer
enters into a legally binding commitment or contract for purchase or construction. For
purposes of this subdivision (76), "full-time employee job" means a permanent, rather than
seasonal or part-time employment position for at least twelve (12) consecutive months to a
person for at least thirty-seven and one half (37 1/2 ) hours per week with minimum health
care, as described in title 56, chapter 7, part 22. The three-year period for making the
required capital investment provided for in this subdivision (76) may be extended by the
commissioner of economic and community development for a reasonable period, not to
exceed four (4) years, for good cause shown. For purposes of this subdivision, “good cause”
includes, but is not limited to, a determination by the commissioner of economic and
community development that the capital investment is a result of the exemption for industrial
machinery used by a qualified data center[.]
A “data center” is defined by Tenn. Code Ann. § 67-6-102(24) as follows:
“Data center” means a building or buildings, newly constructed, expanded, or remodeled,
housing high-tech computer systems and related equipment[.]
The purchase, license or lease of computer hardware, software, maintenance, and computer
related services described in the facts presented by [TAXPAYER] for use in a facility that is a
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qualified data center clearly falls within the contemplation of the terms “computer”, “computer
network”, “computer software”, and “computer system”, as those terms are defined by Tenn.
Code Ann. § 39-14-601. The facts presented state that [TAXPAYER] will purchase the
Computer Equipment for use in its qualified data center. Assuming that all of the requirements
set forth in Tenn. Code Ann. § 67-6-102(76) for the creation of a qualified data center are met,
[TAXPAYER]’s purchase, license or lease of computer hardware, software, maintenance, and
computer related services for use in its QDC will qualify as industrial machinery under Tenn.
Code Ann. § 67-6-102(47)(K).
[TAXPAYER] received an Industrial Machinery Authorization Exemption Certificate from this
Department effective [DATE] for use in connection with its QDC and has made purchases of
qualifying industrial machinery for the QDC. [TAXPAYER] will now be expanding its facilities to
meet the requirements of a “qualified headquarters facility,” as defined in Tenn. Code Ann. § 676-224(b)(9). [TAXPAYER] will continue to maintain its QDC designation in accordance with
Tenn. Code Ann. §§ 67-6-102(76) and 67-6-102(24).
[TAXPAYER] may continue to use its Industrial Machinery Authorization Exemption Certificate
to purchase, lease or license industrial machinery described in Tenn. Code Ann. § 67-6102(47)(K), provided that [TAXPAYER] meets all applicable statutory requirements.
[REDACTED INFORMATION]

4.

Qualified Sales and Use Tax Credits Provided by Tenn. Code Ann. § 67-6-224(a)
May be Used by [TAXPAYER] to Offset its Sales and Use Taxes Paid on Tangible Personal
Property Purchased By, or Used At, any [TAXPAYER] Location in Tennessee, Provided that All
Applicable Statutory Requirements are Met.

Tenn. Code Ann. § 67-6-224(a) states that “a taxpayer who establishes a qualified headquarters
facility in this state shall be eligible for a credit of all state sales or use taxes paid to the state of
Tennessee, except tax at the rate of one-half percent (0.5%), on the sales or use of qualified
tangible personal property.”
For this purpose, “qualified tangible personal property” is defined by Tenn. Code Ann. § 67-6224(b)(11) as follows:
“Qualified tangible personal property” means building materials, machinery, equipment,
furniture, and fixtures used exclusively in the qualified headquarters facility and purchased or
leased during the investment period and computer software used primarily in the qualified
headquarters facility and purchased or leased during the investment period. “Qualified
tangible personal property” does not include supplies or repair parts. “Qualified tangible
personal property” does not include any payments with respect to leases of qualifying
tangible personal property that extend beyond the investment period. “Qualified tangible
personal property” does not include any materials, machinery, equipment, furniture, or
fixtures that replace tangible personal property that previously generated a credit under this
section.

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Tenn. Code Ann. § 67-6-224(d) sets out certain compliance requirements that must be met in
order for the credit provided by Tenn. Code Ann. § 67-6-224(a) to be taken. Such requirements
may be summarized as follows:

1. On forms prescribed by the Commissioner of Revenue, the taxpayer must submit for
   approval an application to qualify as a headquarters facility.
2. On forms prescribed by the Commissioner of Revenue, the taxpayer must submit for
   approval a business plan describing the investment to be made and, if applicable,
   documentation verifying employment and wage information.
3. The taxpayer must obtain a letter from the Commissioner of Revenue stating that it has
   tentatively met the requirements for the headquarters credit.
4. The taxpayer must submit a claim for the headquarters credit along with documentation
   required by the Commissioner of Revenue to show that Tennessee sales or use taxes
   have been paid on the qualified tangible personal property.
5. The taxpayer must obtain a letter from the Commissioner of Revenue stating the amount
   of headquarters credit approved and providing direction for taking the credit.
   Once the above requirements have been met, Tenn. Code Ann. § 67-6-224(d)(4) provides that
   the credit may be taken only by the taxpayer establishing the qualified headquarters facility.
   Tenn. Code Ann. § 67-6-224(f) states that the credit cannot reduce taxes earmarked and
   allocated to education pursuant to Tenn. Code Ann. § 67-6-103(c).
   [TAXPAYER] will be filing a new Application and Investment Plan to qualify as a headquarters
   facility with regard to the proposed expansion described in the Facts presented and expects to
   meet the qualified headquarters facility requirements set forth in the applicable statutes. Upon
   compliance with the applicable statutory requirements in accordance with this Letter Ruling,
   [TAXPAYER] will be eligible for the qualified headquarters credit provided by Tenn. Code Ann. §
   67-6-224(a).
   Tenn. Code Ann. § 67-6-224(h)(1) states that “[t]he commissioner may, in the commissioner’s
   sole discretion, enter into a managed compliance agreement with a taxpayer that is entitled to
   the credit provided in this section.” The statute further states that such a managed compliance
   agreement may contain the following provisions:
   (A) One (1) or more effective rates to be applied to a predetermined base of purchases
   subject to the credit provided in this section for a defined period;
   (B) A procedure under which the eligible taxpayer can use a direct pay permit issued by the
   commissioner to purchase tangible personal property without paying to its supplier the
   tax imposed by this chapter and to remit the tax due on the tangible personal property
   directly to the department;

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(C) A term not to exceed the investment period; provided, that nothing shall preclude the
commissioner from entering into a subsequent agreement with the same taxpayer;
(D) The conditions under which the agreement may require modification or termination;
(E) A procedure to resolve disputes concerning the agreement; and
(F) Any other provisions that the commissioner and the eligible taxpayer mutually agree
upon to carry out the purposes of this section.
A letter from this Department dated [DATE] signed by Deputy Commissioner Glen Page stated
that the Department will work with [TAXPAYER] on a managed compliance agreement in
accordance with Tenn. Code Ann. § 67-6-224(h) in order to enable [TAXPAYER] to streamline
the process and properly capture the qualified headquarters sales and use tax credits. Such an
agreement will be entered into separate and apart from this Letter Ruling.

Arnold B. Clapp
Special Counsel to the Commissioner

APPROVED: ________
Richard H. Roberts, Commissioner

DATE:

__3-15-11______

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