Data center tax exemptions in Georgia remain in place – for now

The proposed pause to Georgia’s data center tax exemption has been vetoed

Since 2018, Georgia has offered an incentive for the equipment and software housed within hyperscale data centers, fueling development and expansion, and cementing the state as a hotbed in the competitive data center industry. Since introducing the tax breaks data center construction has exploded throughout the state, particularly in the Greater Atlanta metro area, with 18 data center projects under development or gearing up for expansion across the state as of January 2024, according to The Atlanta Journal-Constitution. In fact, CBRE reported that Atlanta’s data center market is growing more rapidly than any other US market, and in 2023, the Atlanta area had the largest increase in data center construction across the country, expanding by 211%.

However, with so many data centers opening and expanding, concerns have emerged regarding the drain on the state’s power grid. As a result, in March 2024, Georgia lawmakers passed a bill (House Bill 1192) that proposed suspending the state’s sales and use tax exemptions for high-tech data centers for two years, beginning on July 1st, 2024. This bill would have created a special commission to study the energy-intensive data centers and the existing power grid and make recommendations around how to expand grid capacity. Georgia Power, the state’s largest electric utility, said it needs to build more infrastructure to provide additional power to meet the booming demand, which is primarily coming from the state’s data centers.

Developers and operators can still take advantage of tax breaks… for now

Governor Brian Kemp vetoed House Bill 1192 earlier this month, noting that “Only two years ago the legislature extended these tax exemptions for an additional three years, through 2031.” According to Kemp’s veto statement, the bill would prevent the issuance of exemption certificates after an abrupt July 1, 2024 deadline for many customers of projects that are already in development. This abrupt change would undermine investments made by high-technology data center operators, customers, and other stakeholder sin reliance on the recent extension, and would inhibit important infrastructure and job development.

If any data center developer or operator is interested in building in Georgia, now is the time to take advantage of the valuable tax break while it is still available.

Definition of data centers

The Georgia law defines a high-technology data center as a facility, or group of connected facilities, that is developed to “power, cool, secure, and connect” data center computer equipment. The law offers the sales and use tax exemption for computers and related equipment – including emergency back-up generators, air handling units, cooling towers, energy storage or energy efficiency technology, switches, peripheral computer devices, routers, batteries, wiring, and cabling – that is either purchased or leased for use in a high-technology data center.

How to qualify for the tax exemption

Developers and companies may receive the exemption if they apply for the program before commencing project activities and hit specific thresholds related to job creation and investment. To qualify for the exemption, the exact investment threshold is based upon the county where the data center is located. For counties with populations over 50,000, it is a $250 million minimum capital investment and the creation of 25 jobs. For counties between 30,000 and 50,000 people, the minimum threshold is $75 million and the creation of 10 jobs. Any county with fewer than 30,000 people calls for a minimum investment of $25,000 and the creation of five jobs. The capital investment and job creation thresholds can be met by both the developer and eligible tenants, customers, or operator of the project to be eligible.

What is the actual value of the exemption?

Since it is a sales and use tax exemption on qualifying data center equipment going into a facility, it is an excellent way to reduce upfront project costs. This makes a project more viable; lowering early costs is a significant benefit to a data center project, particularly with the current high-interest rate environment and elevated expectations on returns. The term of the exemption is seven years, or until December 31st, 2031, which allows any eligible purchases within the investment period to be exempt.

While it depends on the type of data center built, whether a developer is building it out fully or only certain parts of it, or providing certain equipment for other tenants to use, roughly 80% of a company’s data center investment would qualify under this exemption.

The minimum threshold in most of the counties where these projects are being developed (within the Greater Atlanta metro area), must hit that $250 million benchmark. Eighty percent of that equates to approximately $10 million in benefits at the minimum threshold, and it scales up from there based on the magnitude of the project and the potential investment.

What is the application process?

The application process is relatively streamlined, however, there are nuances that should be strategically considered when completing and submitting the application.

The application can be completed quickly if the necessary information is available, including the project’s budget, proof of control or ownership of the property, future prospective tenants, and entity details. Upon approval, tenants may then apply for the exemption under the data center owner’s exemption so long as a lease is in place with a minimum term of 36 months.

Don’t wait, give yourself plenty of lead time

As a developer or operator of data center projects, now is the time to strategically take advantage of this lucrative tax exemption, as another pause to the exemption could be proposed in future legislative sessions.

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