Incentives for Qualified Data Centers to Locate in the State

In early March, Connecticut took a competitive step to encourage the investment in data centers and colocation facilities, an industry that has had substantial growth in recent years throughout the nation, especially as the data needs of every business have increased during the pandemic.  Such investment can be an attractive alternative to revive properties whose prior use may have become obsolete.  We have briefly summarized the tax incentives proposed in Connecticut’s new law below; however, there may be additional incentives available for data centers and colocation facilities that are partially or entirely powered by renewable sources.  We will address those in future communications.

Effective July 1, 2021 Public Act No. 21-1 specifies that any owner or operator of, or colocation tenant in, a Qualified Data Center in the State of Connecticut can apply to the Department of Economic and Community Development (DECD) to enter into an agreement with the DECD to be exempted from real property taxes, sales and use taxes, and financial transactions taxes or fees on trades of stocks, bonds, derivatives and financial products.  This agreement (and the accompanying tax exemptions) will have a term of at least twenty (20) years and may be extended to thirty (30) years as described below.

In order to qualify for the tax exemptions, the owner or operator, during the five-year investment period, must make an investment in a Qualified Data Center of at least $50,000,000 if the project is located in a State enterprise zone or a federal Qualified Opportunity Zone, or $200,000,000 otherwise.  (The agreement can be extended for thirty (30) years if the investment is at least $200,000,000 for a project in a State enterprise zone or federal Qualified Opportunity Zone, or $400,000,000 otherwise.)  A “Qualified Data Center” is a facility that is developed, acquired, constructed, rehabilitated, renovated, repaired or operated to house a group of networked computer servers in one physical location or multiple contiguous locations to centralize the storage, management and dissemination of data and information pertaining to a particular business or classification or body of knowledge.

During the five-year investment period (or until the investment has been completed, if earlier) the owner or operator must pay an annual fee to the DECD not to exceed $50,000.  Additionally, prior to the investment, the owner or operator must enter into a negotiated host municipality fee agreement (which may include a payment in lieu of taxes) with the municipality in which the Qualified Data Center will be located.

In order to facilitate the foregoing agreements and investments, the DECD will create an Office of Data Infrastructure Administration and Security.  As more information about the implementation of this program becomes available, we will address these matters in future communications.  Please click here to receive updates on qualified data centers.