Do server power and data cables or computer racking systems qualify as computer equipment under Georgia's high-technology sales-tax exemption?

Plain-English summary

An online social-networking company operated two Georgia data centers that qualified for the high-technology sales-and-use-tax exemption. It bought large volumes of power and data cables to connect and power servers, plus rack systems that stacked servers, reduced floor space, simplified cabling, and sometimes incorporated cooling and power support.

The Department ruled that neither product category was exempt "computer equipment" under O.C.G.A. § 48-8-3(68):

• Power and data cables: not exempt because the regulation expressly lists cable among items that do not qualify.
• Computer racks: not exempt because the racks did not perform any of the enumerated functions in the statutory definition, such as storing or managing production data or hosting production applications, development activity, or application testing.

The fact that the facilities and other equipment qualified did not extend the exemption to every component used in the server farm.

What this means for you

Data-center operators

Facility eligibility and the annual investment threshold are only part of the analysis. Each purchased item must independently fit the statutory computer-equipment definition and avoid the regulation's exclusion list.

Infrastructure and procurement teams

Supporting a server farm is not the same as performing a listed computing function. The racks' organization, space-saving, cabling, cooling, and power-support roles were insufficient on the facts presented.

Common questions

Q: Are Ethernet, LAN, Cat-5, power, and similar server cables exempt?

A: No. The ruling applies the regulation's express exclusion for cable.

Q: Do server racks qualify because they hold and organize exempt servers?

A: No. The racks did not themselves store or manage production data or host the applications and activities listed in the statute.

Q: What if a rack includes cooling or power support?

A: Those features were described in the facts, but the Department still found that the racking systems did not perform an enumerated computer-equipment function.

Q: Does operating a qualifying data center make all its purchases exempt?

A: No. The company and facilities qualified, but the Department separately tested and rejected these cables and racks.

Q: Can another data-center operator rely on this ruling?

A: No. The ruling is limited to the requesting taxpayer's products and facts, and exemptions are strictly construed.

Citations and references

Authorities:

• O.C.G.A. § 48-8-3(68)(A), (C) -- high-technology exemption and computer-equipment definition
• Ga. Comp. R. & Regs. r. 560-12-2-.107(2)(e), (4)(g) -- high-technology company definition and excluded items
• Ga. Comp. R. & Regs. r. 560-12-1-.18 -- strict construction of exemptions
• Ga. Dept. of Revenue v. Owens Corning, 283 Ga. 489 (2008), and ChoicePoint Services, Inc. v. Graham, 305 Ga. App. 254 (2010) -- construction authorities cited by the Department

Source

• Landing page: Georgia Sales & Use Tax Letter Rulings
• Original PDF: LR SUT-2017-12

Original ruling text

Georgia Letter Ruling Number: LR SUT-2017-12
Topic: High Tech Exemption
Date Issued: August 30, 2017
This letter is in response to your request for guidance on the proper application of Georgia sales and use tax to certain
purchases made by your client [Redacted] (“Taxpayer”).
Facts as Provided by Taxpayer
Taxpayer is an online social networking company that connects users through its website interface or mobile device
application. Taxpayer operates two data centers/server farms within Georgia which qualify for the high technology
sales and use tax exemption. Among other items, such as computers, servers and their processing component parts,
Taxpayer purchases power cables, data transmission cables, and racking systems to maintain its data centers in
Georgia.
Routine purchases of large volumes of cables include power cables, Cat-5 cables, SNM cables, Ethernet cables, LAN
cables, etc. These cables provide power to servers and other computer equipment and are used to connect an assembly
of computers into an organized system functioning as a server farm.
Additionally, Taxpayer purchases a significant number of computer racking systems. A racking system contains
multiple mounting slots called bays, each designed to hold a hardware unit, secured in place with screws. A single
rack can contain multiple servers stacked one above the other, consolidating network resources and minimizing the
required floor space. The rack server configuration also simplifies cabling resources and minimizes the required floor
space. The rack server configuration also simplifies cabling among network components. In an equipment rack filled
with servers, a special cooling system might be embedded into the racking structure to prevent excessive heat buildup that would otherwise occur when many power-dissipating components are confined in a small space. These racking
systems provide peripheral cooling and power support for server farms and enable server organization.
Issues
1.

Are server farm data transmission cables and computer power cables “computer equipment” as defined in of
Georgia’s high-technology exemption, O.C.G.A. § 48-8-3(68)?

2.

Are computer racking systems “computer equipment” as defined in Georgia’s high-technology exemption,
O.C.G.A. § 48-8-3(68)?

Analysis
Georgia levies and imposes a tax (subject to certain specific exemptions) on the retail purchase, retail sale, storage,
use, or consumption of tangible personal property, certain enumerated services, and utilities. 1 A “retail sale” is any
sale, lease, or rental for any purpose other than for resale, sublease, or subrent. 2
While taxation is the rule, the Georgia Code does provide for specific exemptions. O.C.G.A. § 48-8-3(68) states that
sales and use taxes do not apply to the sale or lease of computer equipment to be incorporated into a facility or facilities
in this state to any high-technology company classified under North American Industrial Classification System code
51121, 51331, 51333, 51334, 51421, 52232, 54133, 54171, 54172, 334413, 334611, 513321, 513322, 514191,
541511, 541512, 541513, or 541519 where such sale of computer equipment for any calendar year exceeds $15 million
or, in the event of a lease of such computer equipment, the fair market value of such leased computer equipment for
any calendar year exceeds $15 million. 3 As used in this exemption, the term “high-technology company” means a
company or specific company facility that has been assigned a classification code as specified above. 4
The term “computer equipment” means:
1

O.C.G.A. §§ 48-8-1, 48-8-2(31)(A), and 48-8-30.
O.C.G.A. § 48-8-2(31).
3
O.C.G.A. § 48-8-3(68)(A).
4
Ga. Comp. R. & Regs. r. 560-12-2.107(2)(e). The U.S. Census Bureau revises NAICS codes and publishes an updated
manual. An entity should use the appropriate code from the most recent manual, currently the 2017 NAICS Manual.
2

Georgia Letter Ruling Number: LR SUT-2017-12
Topic: High Tech Exemption
Date Issued: August 30, 2017
Page 2 of 2

any individual computer or organized assembly of hardware or software, such as a server farm,
mainframe or midrange computer, mainframe-driven high speed print and mailing devices, and
workstations connected to those devices via high bandwidth connectivity such as a local area
network, wide area network, or any other data transport technology which performs one of the
following functions: storage or management of production data, hosting of production applications,
hosting of application systems development activities, or hosting of applications systems testing. 5
(emphasis added)
The term “computer equipment” excludes (i) telephone central office equipment or other voice data transport
technology and (ii) equipment with imbedded computer hardware or software which is primarily used for training,
product testing, or in a manufacturing process. 6
Rule 560-12-2-.107 provides examples of items that do not qualify for this exemption. Such items include, but are not
limited to, “cable; telephone central office equipment; voice data transmission equipment; equipment with imbedded
hardware or software used primarily for training, product testing or in manufacturing; scanners; printers and paper;
ink and toner; wrist and mouse pads; tools; all removable storage media such as, diskettes, compact disks or tapes;
and parts for maintenance or repair of computer system hardware.” 7
Because taxation is the rule and exemption from taxation is the exception, tax exemptions are strictly construed and
cannot be granted unless the statute clearly shows that exemption was the intention of the General Assembly. 8
Accordingly, Department reads statutes with their natural and most obvious import without forcing limits or extending
their operation. 9 As the plain language of the Rule provides, cables do not qualify for the relevant exemption. In
addition, Taxpayer’s computer racking systems do not perform one of the enumerated functions and, thus, are not
computer equipment for purposes of the exemption.
Rulings

1. The cables at issue do not qualify as computer equipment as defined in the exemption codified at O.C.G.A. § 488-3(68).

2. The computer racking systems described above do not qualify as computer equipment as defined in the exemption
   codified at O.C.G.A. § 48-8-3(68).
   The opinions expressed in this ruling are based upon the information contained in your request and limited to the
   specific transactions, facts, circumstances, and taxpayer in question. Should the circumstances regarding the
   transactions change or differ materially from those represented, then this ruling may become invalid. Subsequent
   statutory or administrative rule changes or judicial interpretations of the statutes or rules upon which this ruling is
   based may subject similar future transactions to a different tax treatment than that expressed in this response.

5

O.C.G.A. § 48-8-3(68)(C)(i).
O.C.G.A. § 48-8-3(68)(C)(ii).
7
Ga. Comp. R. & Regs. r. 560-12-2-107(4)(g).
8
Ga. Comp. R. & Regs. r. 560-12-1-.18; Ga. Dept. of Revenue v. Owens Corning, 283 Ga. 489 (2008).
9
ChoicePoint Services, Inc. v. Graham, 305 Ga. App. 254 (2010).
6