North Carolina Data Center Sales Tax Exemption Requirements

The North Carolina data center sales tax exemption lets qualifying facilities buy electricity and defined support equipment without paying state or local sales tax, which otherwise runs between 6.75% and 7.5% depending on the county.¹ To qualify, a facility must commit at least $75 million in private investment within five years, meet a wage standard tied to the county’s development tier, and provide qualifying health insurance to full-time employees. The program has no expiration date.²

The exemption is aimed at industrial-scale operations, not small server rooms. It sits in G.S. 105-164.13(55a), and the definition of a “qualifying datacenter” lives separately at G.S. 105-164.3(201).³ A separate track under subsection (55) covers “eligible internet datacenters” with its own definition; most operators pursue the (55a) track described here.

The Three Qualifying Conditions

A $75 Million Investment Within Five Years

The Secretary of Commerce must issue a written determination that at least $75 million in private funds has been or will be invested in real and tangible property at the facility within five years of the first qualifying investment. The money can come from one or more owners, users, or tenants. Investments made before January 1, 2012, don’t count toward the threshold.³

The Commerce determination is a prerequisite, not a formality. Without it in hand, no exemption applies, regardless of how much has already been spent on the site.

Wages Tied to the County’s Tier

The wage requirement depends on where the facility sits. In a tier one county (the state’s most economically distressed), there is no wage standard at all. In a tier two or tier three county, the average weekly wage of all full-time positions at the data center must equal at least 110% of the lesser of two benchmarks: the statewide average wage for private employers, or 90% of the county average wage. Special rules apply to facilities in urban progress zones or agrarian growth zones.³

Health Insurance for Full-Time Employees

The data center must provide health insurance to all full-time employees for as long as it operates. The employer must pay at least 50% of premiums, and the plan must meet or exceed the basic health care plan recommended by the Small Employer Carrier Committee.³ This is a continuing obligation. If coverage lapses or drops below the standard, the facility’s qualifying status is at risk.

What the Exemption Covers

Two categories of purchases become exempt once a facility qualifies: electricity consumed at the data center, and “datacenter support equipment” located and used at the facility.² For a site drawing tens of megawatts continuously, the electricity exemption alone is significant.

Support equipment must be capitalized for federal tax purposes, meaning it appears on the books as a depreciable asset rather than an operating expense. Consumable supplies typically don’t qualify. The statute covers property in these categories:⁴

Electrical infrastructure, including exterior substations, generators, transformers, uninterruptible power supply systems, batteries, power distribution units, and remote power panels.
Cooling and mechanical systems, including chillers, cooling towers, air handlers, pumps, and related capital equipment.
Computing hardware and software, including servers, mainframes, data storage devices, network connectivity equipment, and peripheral components.
Property used for computer engineering or computer science research.
Property used to provide services or functions included in the business of an owner, user, or tenant of the data center.

The equipment has to be physically located and used at the qualifying facility. Buying a server on the exemption and deploying it at a different site won’t survive an audit.

How to Claim the Exemption

Start with the Secretary of Commerce, not the Department of Revenue. Before any exempt purchases can be made, the facility needs the Secretary’s written determination on the $75 million investment.³ The Economic Development Partnership of North Carolina (EDPNC) is the state’s primary contact for companies working through the incentive and can help route the Commerce request.⁵

Once the determination is issued and the wage and insurance conditions are in place, the operator claims the exemption at the point of sale by giving each vendor a completed Form E-595E, the Streamlined Sales and Use Tax Certificate of Exemption.⁶ The form requires a sales and use tax registration number or an exemption number.

Cite G.S. 105-164.13(55a) as the basis in the explanation field. Describe the items being purchased with enough specificity to show they fall inside the statutory definition of support equipment. “Rack-mounted servers for colocation facility” holds up; “computer parts” invites questions. The form goes to the vendor, not the state, and the vendor drops sales tax from the invoice. The Department of Revenue can still audit either side later to verify the purchase actually qualified.

What Triggers Forfeiture

The clawback in G.S. 105-164.13(55a) is aggressive. If the $75 million isn’t invested within the five-year window, the entire exemption is forfeited. The data center becomes liable for all past taxes it avoided, calculated from the dates they would originally have been due, plus interest.⁴

Even after the investment threshold is met, individual items can trigger forfeiture. Equipment bought tax-free and later moved out of the qualifying facility, or electricity that wasn’t actually used at the data center, produces a forfeiture on those specific purchases. In that case, interest runs from the date the item was put to a disqualifying use, not the original purchase date. All past taxes and interest come due 30 days after the forfeiture date, and late payment brings additional penalties under the state’s general tax enforcement provisions.⁴

This is where compliance failures get expensive. A facility that has claimed exemptions across several years and then misses the five-year deadline faces the full amount back, with interest compounded from the original due dates. Operators near the end of their five-year clock should track cumulative qualifying investment closely and keep the paper trail for every expenditure counted toward the threshold.

Ongoing Compliance and Records

Qualifying isn’t a one-time event. The wage standard and health insurance requirement continue for as long as the data center operates. Falling below the wage benchmark or dropping qualifying coverage puts the exemption at risk.

Practically, that means keeping the Form E-595E provided to each vendor, invoices showing the exemption was applied, and documentation of where each piece of equipment was installed and used. Payroll records supporting the wage calculation and evidence of health insurance coverage should live alongside the tax records. Because forfeiture reaches back to the original purchase date, records from the earliest exempt transactions stay relevant for the life of the facility.

1
North Carolina Department of Revenue. Current Sales and Use Tax Rates
2
North Carolina Office of the Governor. Sales and Use Tax Exemptions for Data Centers
3
North Carolina General Assembly. North Carolina Code 105-164.3 – Definitions
4
North Carolina General Assembly. North Carolina Code 105-164.13 – Retail Sales and Use Tax
5
Economic Development Partnership of North Carolina. Data Centers Sales and Use Tax Exemptions
6
North Carolina Department of Revenue. Form E-595E, Streamlined Sales and Use Tax Certificate of Exemption