In a June 1, 2023 determination, the Virginia commissioner concluded that a Virginia data center operator was entitled to a sales and use tax refund on its equipment purchases, regardless of whether they were delivered to a storage facility prior to delivery to the data center. 

Virginia allows a sales and use tax exemption for certain equipment purchased or leased for use in a data center. In reliance on this exemption, a Virginia data center operator pursued refund claims on its purchases of qualifying equipment. The Department denied the refund claims on the equipment that was delivered to the company’s Virginia storage facility prior to delivery to the data center itself. 

On appeal, the commissioner concluded that the data center operator’s equipment purchases qualified for the exemption, despite first being delivered to a storage facility. The commissioner observed that the statutory exemption did not include a requirement that the data center use the purchased items immediately. Rather, the exemption applied to eligible equipment either “used or to be used” in the operation of the data center. The commissioner further noted that storing equipment in reserve is “an essential part of data center operations.”  The incentive provided by the data center exemption would be impaired by “[p]rohibiting data centers from purchasing items for future use.”

Va. Public Document Ruling No. 23-67, Va. Dep’t of Tax. (Jun. 1, 2023).