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Taxability and Situsing of Certain Data Center Transactions

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Data Center Taxability

Owners and users of data centers located in Ohio beware!  Companion cases currently before the Ohio Board of Tax Appeals consider whether co-locating equipment at a data center is a service subject to sales tax.  The cases further consider whether credit card processing services are taxable at the location where the service was provided or using a multiple points of use (“MPU”) method.

In ADS Alliance Data Systems, Inc. v. McClain,  BTA No. 2022-2 and a companion case relating to an affiliated taxpayer, Comenity Servicing, LLC v. Harris, BTA No. 2022-3, the first issue is the services provided to ADS/Comenity by Fujitsu at Fujitsu’s Ohio data center.   The facts are not fully laid out in the record.  In its brief, the ADS/Comenity argues that it locates its own property in Fujitsu’s data center and that the fee is for the rental of space, not for data storage.  The Tax Commissioner argues that the taxpayer failed to argue at the lower level (at the Tax Appeals Division of the Ohio Department of Taxation) that the charges were non-taxable and, therefore, the Board does not have jurisdiction over that issue. The Tax Commissioner makes this argument even though the case involves a refund claim, which does not generally require specificity.

The second issue is whether credit card processing services provided by Fujitsu are taxable at the Ohio data center where the services were provided to the appellant (ADS or Comenity) or via an MPU method.   The Tax Commissioner argues that the benefit realized to ADS/Comenity is at the Ohio data center pursuant to the sales tax situsing provisions.  Appellant, on the other hand, argues that the sales tax statute does not address where the benefit is realized and the situsing applied for Ohio Commercial Activity Tax (“CAT”) purposes should apply, which would provide for situsing based on the cardholder’s location.

The parties filed briefs in the case and the Appellant filed exhibits, although most of the documents appear to have been in the statutory transcript.   While the record is unclear, it appears that the parties may have waived hearing.  The exhibits may already be in the record or the parties may have agreed to stipulate to any authentication issues related to the exhibits.

If you would like to discuss data center taxability or any other points discussed in this post, please reach out to Deb McGraw or any of our ZHF professionals.

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