Kentucky Tax Incentives for Qualified Data Centers
Stites & Harbison Client Alert, December 6, 2024
As Kentucky prepares for the 2025 legislative session, Stites & Harbison will be watching to see whether the General Assembly expands data center tax incentives beyond House Bill 8 (“HB 8”) which was passed by the Kentucky General Assembly in 2024. Among other provisions, HB 8 creates sales and use tax exemptions on data center equipment for eligible entities engaged in providing qualified data center infrastructure.
Under HB 8, eligible entities engaged in “qualified data center projects” will be exempt from sales and use taxes on the sale, purchase, use, storage, consumption, installation, repair, and replacement of data center equipment.
The exemption, however, is extremely limited due to the narrow definition of “qualified data center project,” which requires a minimum capital investment and location restrictions.
A data center project is only eligible for the sales and use tax exemptions if, within the first five (5) years, the owner, operator, or colocation tenant makes a minimum capital investment of $450,000,000, or project organizer makes a minimum capital investment of $150,000,000.
Further, a data center project is only eligible for the sales and use tax exemptions if the project is located within a consolidated local government with a population of at least 500,000. Accordingly, in practice, data center projects in Kentucky will only qualify for the tax exemption if located in Louisville, Jefferson County, Kentucky.
The data center project may not result in replacement of an existing data center in Kentucky, apply for or accept certain other economic development incentives, nor benefit from an exemption for the sale or purchase of electricity used in commercial mining of cryptocurrency.
With this tax incentive, the Kentucky General Assembly seeks to encourage the location of data centers within the Commonwealth of Kentucky, which it considers of “paramount importance to the economic well-being of the Commonwealth.” With the Data Center construction market expected to grow by almost $20 billion in the next four years, Stites & Harbison will closely monitor whether the General Assembly expands qualified data center projects beyond Louisville into other areas of the Commonwealth.