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If you operate an Internet data center in New York State, certain property that you purchase for use in the data center and certain services related to this property are exempt from sales tax. This bulletin explains who is considered an operator of an Internet data center for purposes of the exemption, and which property and services are exempt from sales tax.
An operator of an Internet data center is a person who:
Note: You don’t qualify for this exemption if you’re primarily engaged in the retail sale of your own Internet access service (i.e., providing connection to the Internet).
An operator of an Internet data center doesn’t have to pay sales tax on the purchase or use of machinery, equipment, and certain other tangible personal property.
Property eligible for the exemption includes:
The exemption also includes property related to:
Exempt property must be:
Internet Web site services must include, but are not limited to, the uninterrupted access and continuous traffic management services mentioned above.
Internet data center operators may purchase the following services exempt from tax when the services are provided directly to or in relation to exempt Internet data center property:
If any of these services are for property some of which is taxable and some of which is exempt, an allocation may be used to determine the amount related to the exempt property. The exempt portion must be separately stated on the invoice given to the Internet data center operator or the whole invoice is subject to tax. Acceptable allocation methods include allocations based on square footage, time, or property values.
Example: A protective service is hired by an Internet data center operator to protect its three-story office building. Each floor in the building has 50,000 square feet of space. The Internet data center occupies the entire first floor. In this instance, an allocation of the total charge for the protective services based on square footage would be acceptable. Accordingly, one-third of the total charge would be exempt from tax if the exempt portion is separately stated on the invoice.
A contractor, subcontractor, or repairman may:
An Internet data center operator should use Form ST-121.5, Exempt Use Certificate for Operators of Internet Data Centers (Web Hosting), when purchasing either property or services exempt from tax.
A contractor, subcontractor, or repairman should use Form ST-120.1, Contractor Exempt Purchase Certificate, to purchase exempt property or services.
Tax Law: Sections 1115(a)(37) and 1115(y)
TSB-M-00(7)S, Sales and Use Tax Exemptions for Operators of Internet Data Centers (Web Hosting)