                                 CODE OF VIRGINIA

COMMERCIAL AND INDUSTRIAL EXEMPTIONS (§ 58.1-609.3)

The tax imposed by this chapter or pursuant to the authority granted in §§
58.1-605 and 58.1-606 shall not apply to the following:

1. Personal property purchased by a contractor which is used solely in another
state or in a foreign country, which could be purchased by such contractor for
such use free from sales tax in such other state or foreign country, and which
is stored temporarily in Virginia pending shipment to such state or country.

2. (i) Industrial materials for future processing, manufacturing, refining, or
conversion into articles of tangible personal property for resale where such
industrial materials either enter into the production of or become a component
part of the finished product; (ii) industrial materials that are coated upon or
impregnated into the product at any stage of its being processed, manufactured,
refined, or converted for resale; (iii) machinery or tools or repair parts
therefor or replacements thereof, fuel, power, energy, or supplies, used
directly in processing, manufacturing, refining, mining or converting products
for sale or resale; (iv) materials, containers, labels, sacks, cans, boxes,
drums or bags for future use for packaging tangible personal property for
shipment or sale; or (v) equipment, printing or supplies used directly to
produce a publication described in subdivision 3 of &#xA7; 58.1-609.6 whether it
is ultimately sold at retail or for resale or distribution at no cost.
Machinery, tools and equipment, or repair parts therefor or replacements
thereof, shall be exempt if the preponderance of their use is directly in
processing, manufacturing, refining, mining or converting products for sale or
resale. The provisions of this subsection do not apply to the drilling or
extraction of oil, gas, natural gas and coalbed methane gas. In addition, the
exemption provided herein shall not be applicable to any machinery, tools, and
equipment, or any other tangible personal property used by a public service
corporation in the generation of electric power, except for raw materials that
are inputs to production of electricity, including fuel, or for machinery,
tools, and equipment used to generate energy derived from sunlight or wind. The
exemption for machinery, tools, and equipment used to generate energy derived
from sunlight or wind shall expire June 30, 2027.

3. Tangible personal property sold or leased to a public service corporation
engaged in business as a common carrier of property or passengers by railway,
for use or consumption by such common carrier directly in the rendition of its
public service.

4. Ships or vessels, or repairs and alterations thereof, used or to be used
exclusively or principally in interstate or foreign commerce; fuel and supplies
for use or consumption aboard ships or vessels plying the high seas, either in
intercoastal trade between ports in the Commonwealth and ports in other states
of the United States or its territories or possessions, or in foreign commerce
between ports in the Commonwealth and ports in foreign countries, when delivered
directly to such ships or vessels; or tangible personal property used directly
in the building, conversion or repair of the ships or vessels covered by this
subdivision. This exemption shall include dredges, their supporting equipment,
attendant vessels, and fuel and supplies for use or consumption aboard such
vessels, provided the dredges are used exclusively or principally in interstate
or foreign commerce.

5. Tangible personal property purchased for use or consumption directly and
exclusively in basic research or research and development in the experimental or
laboratory sense.

6. Notwithstanding the provisions of subdivision 20 of &#xA7; 58.1-609.10, all
tangible personal property sold or leased to an airline operating in intrastate,
interstate or foreign commerce as a common carrier providing scheduled air
service on a continuing basis to one or more Virginia airports at least one day
per week, for use or consumption by such airline directly in the rendition of
its common carrier service.

7. Meals furnished by restaurants or food service operators to employees as a
part of wages.

8. Tangible personal property including machinery and tools, repair parts or
replacements thereof, and supplies and materials used directly in maintaining
and preparing textile products for rental or leasing by an industrial processor
engaged in the commercial leasing or renting of laundered textile products.

9. Certified pollution control equipment and facilities as defined in &#xA7;
58.1-3660, except for any equipment that has not been certified to the
Department of Taxation by a state certifying authority or subdivision certifying
authority pursuant to such section.

10. Parts, tires, meters and dispatch radios sold or leased to taxicab operators
for use or consumption directly in the rendition of their services.

11. High speed electrostatic duplicators or any other duplicators which have a
printing capacity of 4,000 impressions or more per hour purchased or leased by
persons engaged primarily in the printing or photocopying of products for sale
or resale.

12. From July 1, 1994, and ending July 1, 2024, raw materials, fuel, power,
energy, supplies, machinery or tools or repair parts therefor or replacements
thereof, used directly in the drilling, extraction, or processing of natural gas
or oil and the reclamation of the well area. For the purposes of this section,
the term &#8220;natural gas&#8221; shall mean &#8220;gas,&#8221; &#8220;natural
gas,&#8221; and &#8220;coalbed methane gas&#8221; as defined in &#xA7;
45.2-1600. For the purposes of this section, &#8220;drilling,&#8221;
&#8220;extraction,&#8221; and &#8220;processing&#8221; shall include production,
inspection, testing, dewatering, dehydration, or distillation of raw natural gas
into a usable condition consistent with commercial practices, and the gathering
and transportation of raw natural gas to a facility wherein the gas is converted
into such a usable condition. Machinery, tools and equipment, or repair parts
therefor or replacements thereof, shall be exempt if the preponderance of their
use is directly in the drilling, extraction, refining, or processing of natural
gas or oil for sale or resale, or in well area reclamation activities required
by state or federal law.

13. Beginning July 1, 1997, (i) the sale, lease, use, storage, consumption, or
distribution of an orbital or suborbital space facility, space propulsion
system, space vehicle, satellite, or space station of any kind possessing space
flight capability, including the components thereof, irrespective of whether
such facility, system, vehicle, satellite, or station is returned to this
Commonwealth for subsequent use, storage or consumption in any manner when used
to conduct spaceport activities; (ii) the sale, lease, use, storage, consumption
or distribution of tangible personal property placed on or used aboard any
orbital or suborbital space facility, space propulsion system, space vehicle,
satellite or space station of any kind, irrespective of whether such tangible
personal property is returned to this Commonwealth for subsequent use, storage
or consumption in any manner when used to conduct spaceport activities; (iii)
fuels of such quality not adapted for use in ordinary vehicles, being produced
for, sold and exclusively used for space flight when used to conduct spaceport
activities; (iv) the sale, lease, use, storage, consumption or distribution of
machinery and equipment purchased, sold, leased, rented or used exclusively for
spaceport activities and the sale of goods and services provided to operate and
maintain launch facilities, launch equipment, payload processing facilities and
payload processing equipment used to conduct spaceport activities.
			For purposes of this subdivision, &#8220;spaceport activities&#8221; means
activities directed or sponsored at a facility owned, leased, or operated by or
on behalf of the Virginia Commercial Space Flight Authority.
			The exemptions provided by this subdivision shall not be denied by reason of
a failure, postponement or cancellation of a launch of any orbital or suborbital
space facility, space propulsion system, space vehicle, satellite or space
station of any kind or the destruction of any launch vehicle or any components
thereof.

14. Semiconductor cleanrooms or equipment, fuel, power, energy, supplies, or
other tangible personal property used primarily in the integrated process of
designing, developing, manufacturing, or testing a semiconductor product, a
semiconductor manufacturing process or subprocess, or semiconductor equipment
without regard to whether the property is actually contained in or used in a
cleanroom environment, touches the product, is used before or after production,
or is affixed to or incorporated into real estate.

15. Semiconductor wafers for use or consumption by a semiconductor manufacturer.

16. Railroad rolling stock when sold or leased by the manufacturer thereof.

17. Computer equipment purchased or leased on or before June 30, 2011, used in
data centers located in a Virginia locality having an unemployment rate above
4.9 percent for the calendar quarter ending November 2007, for the processing,
storage, retrieval, or communication of data, including but not limited to
servers, routers, connections, and other enabling hardware when part of a new
investment of at least $75 million in such exempt property, when such investment
results in the creation of at least 100 new jobs paying at least twice the
prevailing average wage in that locality, so long as such investment was made in
accordance with a memorandum of understanding with the Virginia Economic
Development Partnership Authority entered into or amended between January 1,
2008, and December 31, 2008. The exemption shall also apply to any such computer
equipment purchased or leased to upgrade, add to, or replace computer equipment
purchased or leased in the initial investment. The exemption shall not apply to
any computer software sold separately from the computer equipment, nor shall it
apply to general building improvements or fixtures.

18. a. Beginning July 1, 2010, and ending June 30, 2035, except as provided in
subdivision 19, computer equipment or enabling software purchased or leased for
the processing, storage, retrieval, or communication of data, including but not
limited to servers, routers, connections, and other enabling hardware, including
chillers and backup generators used or to be used in the operation of the
equipment exempted in this paragraph, provided that such computer equipment or
enabling software is purchased or leased for use in a data center, which
includes any data center facilities located in the same locality as the data
center that are under common ownership or affiliation of the data center
operator, that (i) is located in a Virginia locality; (ii) results in a new
capital investment on or after January 1, 2009, of at least $150 million; and
(iii) results in the creation on or after July 1, 2009, of at least 50 new jobs
by the data center operator and the tenants of the data center, collectively,
associated with the operation or maintenance of the data center provided that
such jobs pay at least one and one-half times the prevailing average wage in
that locality. The requirement of at least 50 new jobs is reduced to 10 new jobs
if the data center is located in a distressed locality at the time of the
execution of a memorandum of understanding with the Virginia Economic
Development Partnership Authority. Additionally, the requirement of a $150
million capital investment shall be reduced to $70 million for data centers that
qualify for the reduced jobs requirement.
			This exemption applies to the data center operator and the tenants of the
data center if they collectively meet the requirements listed in this section.
Prior to claiming such exemption, any qualifying person claiming the exemption,
including a data center operator on behalf of itself and its tenants, must enter
into a memorandum of understanding with the Virginia Economic Development
Partnership Authority that at a minimum provides the details for determining the
amount of capital investment made and the number of new jobs created, the
timeline for achieving the capital investment and new job goals, the repayment
obligations should those goals not be achieved, and any conditions under which
repayment by the qualifying data center or data center tenant claiming the
exemption may be required. In addition, the exemption shall apply to any such
computer equipment or enabling software purchased or leased to upgrade,
supplement, or replace computer equipment or enabling software purchased or
leased in the initial investment. The exemption shall not apply to any other
computer software otherwise taxable under Chapter 6 of Title 58.1 that is sold
or leased separately from the computer equipment, nor shall it apply to general
building improvements or other fixtures.
			b. For purposes of this subdivision 18, &#8220;distressed locality&#8221;
means:

   1. From July 1, 2021, until July 1, 2023, any locality that had (i) an annual
   unemployment rate for calendar year 2019 that was greater than the final
   statewide average unemployment rate for that calendar year and (ii) a poverty
   rate for calendar year 2019 that exceeded the statewide average poverty rate
   for that year; and

   2. From and after July 1, 2023, any locality that has (i) an annual
   unemployment rate for the most recent calendar year for which such data is
   available that is greater than the final statewide average unemployment rate
   for that calendar year and (ii) a poverty rate for the most recent calendar
   year for which such data is available that exceeds the statewide average
   poverty rate for that year.
   				c. For so long as a data center operator is claiming an exemption pursuant
   to this subdivision 18, such operator shall be required to submit an annual
   report to the Virginia Economic Development Partnership Authority on behalf of
   itself and, if applicable, its participating tenants that includes their
   employment levels, capital investments, average annual wages, qualifying
   expenses, and tax benefit, and such other information as the Virginia Economic
   Development Partnership Authority determines is relevant, pursuant to
   procedures developed by the Virginia Economic Development Partnership
   Authority. The annual report shall be submitted by the data center operator in
   a format prescribed by the Virginia Economic Development Partnership
   Authority. The Virginia Economic Development Partnership Authority shall share
   all information collected with the Department.
   				The Department, in collaboration with the Virginia Economic Development
   Partnership Authority, shall publish a biennial report on the exemption that
   shall include aggregate information on qualifying expenses claimed under this
   exemption, the total value of the tax benefit, a return on investment analysis
   that includes direct and indirect jobs created by data center investment,
   state and local tax revenues generated, and any other information the
   Department and the Virginia Economic Development Partnership Authority deem
   appropriate to demonstrate the costs and benefits of the exemption. The report
   shall not include, and the Department and the Virginia Economic Development
   Partnership Authority shall not publish or disclose, any such information if
   it is unaggregated or if such report or publication could be used to identify
   a business or individual. The Department shall submit the report to the
   Chairmen of the Senate Committee on Finance and Appropriations and the House
   Committees on Appropriations and Finance. The Virginia Economic Development
   Partnership Authority may publish on its website and distribute annual
   information indicating the job creation and ranges of capital investments made
   by a data center operator and, if applicable, its participating tenants, in a
   format to be developed in consultation with data center operators.

19. a. Notwithstanding any provision of subdivision 18 to the contrary, the
exemption set forth in subdivision 18 may be extended for the purchase or lease
of computer equipment or enabling software by or on behalf of data center
operators for use in data centers in the Commonwealth that are under common
ownership or affiliation with the data center operator as set forth in this
subdivision 19. For purposes of this subdivision 19, a data center operator
shall be considered to own a data center if it is operated on behalf of the data
center operator pursuant to a long-term lease of at least ten years.
			b. To qualify for an extension pursuant to this subdivision 19, a data center
operator shall enter into a memorandum of understanding with the Virginia
Economic Development Partnership Authority on or after January 1, 2023, that at
a minimum provides the details for determining the amount of capital investment
made and the number of new jobs created; the locality or localities in which the
capital investment shall be made and new jobs shall be created in order to
qualify for the extension; and the timeline for making the capital investment
and creating the new jobs in each specified locality. A data center operator
shall only be required to enter into one memorandum of understanding pursuant to
this subdivision 19 in order to qualify for the extension pursuant to both
subdivisions c and d.
			c. If on or after January 1, 2023, but before July 1, 2035, a data center
operator that has entered into a memorandum of understanding pursuant to
subdivision b (i) makes or causes to be made a capital investment of at least
$35 billion in data centers in localities identified in a memorandum of
understanding and (ii) creates at least 1,000 new full-time jobs, as defined in
&#xA7; 59.1-284.42, at such data centers, of which at least 100 of such jobs
shall pay at least one and one-half times the prevailing average wage in the
Commonwealth, the data center operator shall be eligible to continue to utilize
the exemption set forth in subdivision 18 through June 30, 2040.
			d. If on or after January 1, 2023, but before July 1, 2040, a data center
operator that has entered into a memorandum of understanding pursuant to
subdivision b (i) makes a total capital investment of at least $100 billion,
inclusive of any investment made pursuant to subdivision c, in data centers in
the localities identified in such memorandum of understanding and (ii) creates a
total of at least 2,500 new full-time jobs, as defined in &#xA7; 59.1-284.42, at
such data centers, of which at least 100 of such jobs shall pay at least one and
one-half times the prevailing average wage in the Commonwealth, inclusive of any
new full-time jobs created pursuant to subdivision c, the data center operator
shall be eligible to utilize the exemption set forth in subdivision 18 through
June 30, 2050.
			e. The extension provided in this subdivision 19 shall apply to the computer
equipment or enabling software purchased or leased for use in the data centers
subject to the capital investment and job requirements set forth herein, as well
as to any such computer equipment or enabling software purchased or leased to
upgrade, supplement, or replace computer equipment or enabling software
purchased or leased in the initial investment. The extension shall also apply to
any computer equipment or software purchased or leased in data centers under
common ownership or affiliation with the data center operator for which the data
center operator entered into a memorandum of understanding with the Virginia
Economic Development Partnership Authority to qualify for the exemption set
forth in subdivision 18.
			f. The reporting requirements set forth in subdivision 18 shall continue to
apply to a data center operator for the duration of any extension granted
pursuant to this subdivision 19.

20. If the preponderance of their use is in the manufacture of beer by a brewer
licensed pursuant to subdivision 3 or 4 of &#xA7; 4.1-206.1, (i) machinery,
tools, and equipment, or repair parts therefor or replacements thereof, fuel,
power, energy, or supplies; (ii) materials for future processing, manufacturing,
or conversion into beer where such materials either enter into the production of
or become a component part of the beer; and (iii) materials, including
containers, labels, sacks, cans, bottles, kegs, boxes, drums, or bags for future
use, for packaging the beer for shipment or sale.

21. If the preponderance of their use is in advanced recycling, as defined in
&#xA7; 58.1-439.7, (i) machinery, tools, and equipment, or repair parts therefor
or replacements thereof, fuel, power, energy, or supplies; (ii) materials for
processing, manufacturing, or conversion for resale where such materials either
are recycled or recovered; and (iii) materials, including containers, labels,
sacks, cans, boxes, drums, or bags used for packaging recycled or recovered
material for shipment or resale.

HISTORY: 1993, c. 310; 1994, cc. 365, 381; 1995, cc. 101, 204, 719; 1996, c.
816; 1997, c. 834; 2001, cc. 429, 468, 769; 2003, c. 859; 2004, Sp. Sess. I, c.
3; 2006, cc. 385, 519, 524, 541, 618; 2007, c. 751; 2008, cc. 558, 764; 2010,
cc. 784, 826; 2011, cc. 183, 286; 2012, cc. 613, 655; 2013, c. 10; 2016, cc.
343, 346, 673, 709, 712; 2017, c. 714; 2020, cc. 789, 1113, 1114; 2021, Sp.
Sess. I, cc. 367, 368; 2022, cc. 14, 501; 2023, cc. 144, 671, 678.