House Study Bill 646 HOUSE FILE BY (PROPOSED COMMITTEE ON WAYS AND MEANS BILL BY CHAIRPERSON SHOMSHOR) Passed House, Date Passed Senate, Date Vote: Ayes Nays Vote: Ayes Nays Approved A BILL FOR 1 An Act relating to providing sales, use, and property tax 2 exemptions for certain web search portal businesses. 3 BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA: 4 TLSB 6471HC 82 5 mg/rj/24 PAG LIN 1 1 Section 1. Section 423.3, Code Supplement 2007, is amended 1 2 by adding the following new subsection: 1 3 NEW SUBSECTION. 93. a. (1) The sales price from the sale 1 4 or rental of computers and equipment that are necessary for 1 5 the maintenance and operation of a web search portal business 1 6 and property whether directly or indirectly connected to the 1 7 computers, including but not limited to cooling systems, 1 8 cooling towers, and other temperature control infrastructure; 1 9 power infrastructure for transformation, distribution, or 1 10 management of electricity used for the maintenance and 1 11 operation of the web search portal business, including but not 1 12 limited to exterior dedicated business=owned substations, 1 13 back=up power generation systems, battery systems, and related 1 14 infrastructure; and racking systems, cabling, and trays, which 1 15 are necessary for the maintenance and operation of the web 1 16 search portal business. 1 17 (2) The sales price of back=up power generation fuel, that 1 18 is purchased by a web search portal business for use in the 1 19 items listed in subparagraph (1). 1 20 (3) The sales price of electricity purchased for use by a 1 21 web search portal business. 1 22 b. For the purpose of claiming this exemption, all of the 1 23 following requirements shall be met: 1 24 (1) The purchaser or renter shall be a web search portal 1 25 business. 1 26 (2) The web search portal business shall have a physical 1 27 location in the state that is used for the operations and 1 28 maintenance of the web search portal business. 1 29 (3) The web search portal business shall make a minimum 1 30 investment in an Iowa physical location of two hundred million 1 31 dollars within the first six years of operation in Iowa 1 32 beginning with the date the web search portal business 1 33 initiates site preparation activities. The minimum investment 1 34 includes the initial investment, including land and subsequent 1 35 acquisition of additional adjacent land and subsequent 2 1 investment at the Iowa location. 2 2 (4) The web search portal business shall purchase, option, 2 3 or lease Iowa land not later than December 31, 2008, for any 2 4 initial investment. However, the December 31, 2008, date 2 5 shall not affect the future purchases of adjacent land and 2 6 additional investment in the initial or adjacent land to 2 7 qualify as part of the minimum investment for purposes of this 2 8 exemption. 2 9 c. This exemption applies from the date of the initial 2 10 investment in or the initiation of site preparation activities 2 11 for the web search portal facility as described in paragraph 2 12 "b". For purposes of claiming this exemption, the 2 13 requirements may be met by aggregating the various Iowa 2 14 investments and other requirements of the web search portal 2 15 business's affiliates. This exemption applies to affiliates 2 16 of the web search portal business. 2 17 d. Failure to meet eighty percent of the minimum 2 18 investment amount requirement specified in paragraph "b" 2 19 within the first six years of operation from the date the web 2 20 search portal business initiates site preparation activities 2 21 will result in the web search portal business losing the right 2 22 to claim this web search portal business exemption and the web 2 23 search portal business shall pay all sales or use tax that 2 24 would have been due on the purchase or rental or use of the 2 25 items listed in this exemption, plus any applicable penalty 2 26 and interest imposed by statute. 2 27 e. For purposes of this subsection: 2 28 (1) "Affiliate" means an entity that directly or 2 29 indirectly controls, is controlled with or by, or is under 2 30 common control with another entity. 2 31 (2) "Control" means any of the following: 2 32 (a) In the case of a United States corporation, the 2 33 ownership, directly or indirectly, of fifty percent or more of 2 34 the voting power to elect directors. 2 35 (b) In the case of a foreign corporation, if the voting 3 1 power to elect the directors is less than fifty percent, the 3 2 maximum amount allowed by applicable law. 3 3 (c) In the case of an entity other than a corporation, 3 4 fifty percent or more ownership interest in the entity, or the 3 5 power to direct the management of the entity. 3 6 (3) "Web search portal business" means an entity whose 3 7 business among other businesses is to provide a search portal 3 8 to organize information; to access, search, and navigate the 3 9 internet, including research and development to support 3 10 capabilities to organize information; or to provide internet 3 11 access, navigation, or search functionalities. 3 12 Sec. 2. Section 427.1, Code Supplement 2007, is amended by 3 13 adding the following new subsection: 3 14 NEW SUBSECTION. 36. WEB SEARCH PROPERTY. 3 15 a. Property, other than land and buildings and other 3 16 improvements, that is utilized by a web search portal business 3 17 as defined in and meeting the requirements of section 423.3, 3 18 subsection 93, including computers and equipment that are 3 19 necessary for the maintenance and operation of a web search 3 20 portal business and other property whether directly or 3 21 indirectly connected to the computers, including but not 3 22 limited to cooling systems, cooling towers, and other 3 23 temperature control infrastructure; power infrastructure for 3 24 transformation, distribution, or management of electricity, 3 25 including but not limited to exterior dedicated business=owned 3 26 substations, and power distribution systems which are not 3 27 subject to assessment under chapter 437A; racking systems, 3 28 cabling, and trays; and back=up power generation systems, 3 29 battery systems, and related infrastructure all of which are 3 30 necessary for the maintenance and operation of the web search 3 31 portal business. 3 32 b. This web search portal business exemption applies 3 33 beginning with the assessment year the investment in or 3 34 construction of the facility utilizing the materials, 3 35 equipment, and systems set forth in paragraph "a" are first 4 1 assessed. For purposes of claiming this web search portal 4 2 business exemption, the requirements may be met by aggregating 4 3 the various Iowa investments and other requirements of the web 4 4 search portal business's affiliates as allowed under section 4 5 423.3, subsection 93. This exemption applies to affiliates of 4 6 the web search portal business. 4 7 Sec. 3. IMPLEMENTATION. Section 25B.7 does not apply to 4 8 the property tax exemption enacted in this Act. 4 9 EXPLANATION 4 10 This bill provides a sales and use tax exemption for the 4 11 sale or rental of computers and equipment that are necessary 4 12 for the maintenance and operation of a web search portal 4 13 business and property that is directly or indirectly connected 4 14 to the computers; the sale of back=up power generation fuel; 4 15 and electricity used in the operation and maintenance of the 4 16 web search portal business. 4 17 To qualify for the sales and use tax exemption, the 4 18 purchaser or renter must be a web search portal business, the 4 19 web search portal business must have a physical location in 4 20 the state that is used for the operations and maintenance of 4 21 the web search portal business, the business must have a 4 22 minimum investment within the first six years of operation in 4 23 Iowa of $200 million, and the business must purchase, option, 4 24 or lease land in the state not later than December 31, 2008. 4 25 The bill also provides a property tax exemption for 4 26 property utilized by a web search portal business as defined 4 27 in and meeting the qualifications of the provisions for the 4 28 sales and use tax exemption. 4 29 Code section 25B.7 does not apply to the property tax 4 30 exemption in the bill. That Code section requires state 4 31 funding to implement a property tax exemption. 4 32 LSB 6471HC 82 4 33 mg/rj/24