An Act to provide a sales and use tax exemption for goods and services related to data center operations.

Be it enacted by the Legislature of the State of South Dakota:

Section 1. That a NEW SECTION be added to chapter 10-45:

The terms used in this Act mean:

(1) "Computer software," programs and other operating information used solely for the maintenance and operation of a qualified data center;

(2) "Data center," a centralized repository for the storage, management, dissemination, and processing of electronic data and information, except for that which relates to the mining of digital currency;

(3) "Enterprise information technology equipment," the following products used solely for the maintenance and operation of a qualified data center:

(a) Computer hardware, servers, storage arrays, backup systems, disaster recovery equipment, routers, cooling systems, temperature control infrastructure, network equipment, switches, load balancers, firewalls, network cabling, edge devices, network monitoring equipment, water treatment systems, chilled water equipment, economizers, cooling towers, and piping and pump equipment for cooling towers;

(b) Power infrastructure for the management of electricity, dedicated distribution equipment, backup power generation systems, battery systems, construction materials for structures unique to data centers or other related infrastructure excluding primary electric generation service, transmission, or utility distribution infrastructure;

(c) Racking systems, raised flooring, cabling, or trays necessary for the maintenance and operation of a qualified data center;

(d) Security systems, physical access control systems, surveillance systems, biometric scanners, security monitoring equipment, and monitoring systems, environmental monitoring systems, infrastructure management tools, and building management systems;

(e) Testing and diagnostic equipment used for maintenance, commissioning, or troubleshooting;

(f) Telecommunications and fiber infrastructure, fiber optic cabling, satellite equipment, and internet exchange components; and

(g) Air quality systems, specialized HVAC, filtration, and humidity control equipment;

(4) "Qualified business," the owner, operator, or tenant of a qualified data center or a proposed data center;

(5) "Qualified data center," a facility located in this state:

(a) Comprised of one or more buildings containing a data center;

(b) Where all buildings that contain a data center qualify as real property subject to taxation pursuant to §§ 10-4-1 and 10-4-2;

(c) Where the qualifying date occurs on or after July 1, 2026, and on or before June 30, 2036; and

(d) Equipped with fire suppression and prevention systems; and

(6) "Qualifying date," the date on which a building permit is issued for the initial construction of the facility.

Section 2. That a NEW SECTION be added to chapter 10-45:

There are specifically exempted from the provisions of this chapter and from the computation of tax imposed by it, gross receipts from the sale of enterprise information technology equipment or computer software to be used in a qualified data center. A qualified business is exempt for a period of fifty years after the qualifying date.

Section 3. That a NEW SECTION be added to chapter 10-45:

To be eligible for the exemption provided in section 2 of this Act, a qualified business in a qualified data center, or a qualified business in a proposed qualified data center, shall submit any documentary evidence required by the Department of Revenue to verify the eligibility of the qualified data center or proposed data center. The documentary evidence required by this section is confidential. The secretary of the Department of Revenue shall determine if the qualified business is eligible.

To be eligible for the exemption provided by section 2 of this Act, a qualified business shall:

(1) Ensure electric service provided to the qualified business by an electric utility is under a written agreement or rate schedule that avoids the shifting of costs to other customers of the electric utility; and

(2) Provide notice to local water providers to ensure that water consumption is compatible for the location in which the qualified data center is situated.

Upon determining the eligibility of a future qualified business in a proposed qualified data center, the secretary shall provide an exemption certificate for taxes imposed pursuant to this chapter and chapter 10-46.

To retain eligibility for the exemption provided in section 2 of this Act, a qualified business must file an affidavit with the secretary attesting that the data center or the future data center qualifies for the exemption provided in section 2 of this Act, prior to June first of each year.

Section 4. That a NEW SECTION be added to chapter 10-46:

There are specifically exempted from the provisions of this chapter, gross receipts from the sale of enterprise information technology equipment or computer software to be used in a qualified data center. A qualified business is exempt for a period of fifty years after the qualifying date.